**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**WASHINGTON,
      D.C. 20549**


**FORM
      10-Q**




(Mark
      One)


xQuarterly
      Report
      Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
      1934






**For
      the quarterly period ended September 30, 2005**


or


oTransition
      Report
      Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
      1934




For
      the
      transition period from
                          
      to




**Commission
      File Number 000-51368**


**TBS
      INTERNATIONAL LIMITED**


(Exact
      name of registrant as specified in its charter)




**Bermuda**
            **98-0225954**(State
                or other jurisdiction of
              incorporation
                or organization)
            (IRS
                Employer Identification No.)




**(441)
                295-9230**(Registrant's
                telephone number, including area
                code)




(Former
                name, former address and former fiscal year, if changed since last
                report)




Indicate
      by check mark whether the registrant (1) has filed all reports required to
      be
      filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
      the
      preceding 12 months (or for such shorter period that the registrant was required
      to file such reports), and (2) has been subject to such filing requirements
      for
      the past 90 days.      YES x NO  o




Indicate
      by check mark whether the registrant is an accelerated filer (as defined in
      Rule
      12b-2 of the Exchange Act).


YES o NO  x


APPLICABLE
      ONLY TO CORPORATE ISSUERS




Indicate
      the number of shares outstanding of each of the issuer's classes of common
      stock, as of the latest practical date. As
      of
      November 10,
      2005,
      the registrant had outstanding 14,290,496 Class A common shares, par value
      $0.01
      per share, and 13,404,461 Class B common shares, par value $0.01 per
      share.












**Table
          of Contents**
 **PART
                      I:  FINANCIAL INFORMATION**Item
                      1.
                  Financial
                      StatementsConsolidated
                      Balance Sheets as of December 31, 2004 and
                      September 30, 2005
                  3Consolidated
                      Statements of Income for the three and nine months
                      ended September 30, 2004 and September 30, 2005
                  4Consolidated
                      Statements of Cash Flows for the nine months ended
                      September 30, 2004 and September 30, 2005
                  5Consolidated
                      Statement of Changes in Shareholders' Equity for
                      the nine months ended September 30, 2005
                  6Notes
                      to Consolidated Financial Statements
                  7Item
                      2.
                  Management's
                      Discussion and Analysis of Financial Condition
                      and Results of Operations
                  18Item
                      3.
                  Quantitative
                      and Qualitative Disclosure About Market
                      Risk
                  35Item
                      4.
                  Controls
                      and Procedures
                  35**PART
                      II:  OTHER
                      INFORMATION**Item
                      1.
                  Legal
                      Proceedings
                  36Item
                      2.
                  Unregistered
                      Sales of Equity Securities and Use of Proceeds
                  36Item
                      3.
                  Defaults
                      Upon Senior Securities
                  36Item
                      4.
                  Submission
                      of Matters to a Vote of Security Holders
                  36Item
                      5.
                  Other
                      Information
                  36Item
                      6.
                  Exhibits
                  36Signatures
                  38
 2
 **Part
            I.    FINANCIAL
            INFORMATION**


**Item
      1.    Financial Statements**


**TBS
      INTERNATIONAL LIMITED AND SUBSIDIARIES**


**CONSOLIDATED****BALANCE
      SHEETS
      (UNAUDITED**)


**December
                  31,**
              
              **September
                  30,****2004**
              
              **2005****Assets**Current
                  assetsCash
                  and cash equivalents
              $
              21,674,204
              
              $
              35,023,349Charter
                  hire receivable, net of allowance of $1,456,594 in 2004
                  and$1,023,330
                  in 2005
              
              17,310,426
              
              
              16,293,480Claims
                  receivable, net of allowance of $310,655 in 2004 and $0 in
                  2005
              
              380,258
              
              
              610,349Due
                  from agents
              
              449,488
              
              
              724,109Other
                  receivables
              
              227,411
              
              
              253,487Inventories
              
              3,387,629
              
              
              5,736,286Prepaid
                  expenses
              
              3,866,215
              
              
              2,536,661Advances
                  to affiliates
              
              1,495,474
              
              
              17,810Total
                  current assets
              
              48,791,105
              
              
              61,195,531Deposits
                  for vessel purchases
              
              7,499,000
              
              
              1,850,000Restricted
                  cash
              
              
              
              
              532,500Vessels,
                  net of accumulated depreciation of $24,463,462in
                  2004 and $35,934,477 in 2005
              
              100,366,040
              
              
              239,293,297Other
                  fixed assets, net of accumulated amortization of $409,761in
                  2004 and $730,646 in 2005
              
              503,032
              
              
              2,405,970Goodwill
              
              
              
              
              8,425,935Total
                  assets
              $
              157,159,177
              
              $
              313,703,233**Liabilities
                  and Shareholders' Equity**Current
                  liabilitiesDebt,
                  current portion
              $
              12,446,561
              
              $
              27,103,656Obligations
                  under capital lease, current portion
              
              4,731,574
              
              
              4,388,163Accounts
                  payable
              
              4,403,578
              
              
              3,654,205Accrued
                  expenses
              
              12,351,583
              
              
              16,673,459Voyages
                  in progress
              
              2,650,551
              
              
              1,341,849Advances
                  from affiliates
              
              2,641,485
              
              
              431,346Total
                  current liabilities
              
              39,225,332
              
              
              53,592,678Debt,
                  long-term portion
              
              26,064,647
              
              
              68,102,292Obligations
                  under capital lease, net of current portion
              
              29,909,953
              
              
              25,265,926Total
                  liabilities
              
              95,199,932
              
              
              146,960,896COMMITMENTS
                  AND CONTINGENCIES (Note 12)Shareholders'
                  equityCommon
                  shares, Class A, $.004 par value, 1,500,000 sharesauthorized,
                  issued and outstanding
              
              6,000Common
                  shares, Class B, $.004 par value, 1,500,000 sharesauthorized,
                  issued and outstanding
              
              6,000Common
                  shares, Class C, $.004 par value, 6,000,000 shares
                  authorized,1,000,000
                  shares issued and outstanding
              
              4,000Convertible
                  preference shares, $.004 per share, 1,500,000 shares
                  authorized,1,000,000
                  shares issued and outstanding
              
              4,000Common
                  shares, New Class A, $.01 par value75,000,000
                  authorized, 14,127,016 shares shares issued and
                  outstanding
              
              
              
              
              141,270Common
                  shares, New Class B, $.01 par value30,000,0000
                  authorized, 13,567,941 shares shares issued and
                  outstanding
              
              
              
              
              135,680Warrants
              
              800,000
              
              
              20,747Additional
                  paid-in capital
              
              24,357,936
              
              
              87,585,744Retained
                  earnings
              
              36,781,309
              
              
              78,858,896Total
                  shareholders' equity
              
              61,959,245
              
              
              166,742,337Total
                  liabilities and shareholders' equity
              $
              157,159,177
              
              $
              313,703,233






*The
      accompanying notes are an integral part of these consolidated financial
      statements*




Table
          of Contents
 3


**TBS
      INTERNATIONAL LIMITED AND SUBSIDIAIRES**


**CONSOLIDATED
      STATEMENTS OF OPERATIONS
      (UNAUDITED)**




**Three
                  Months Ended September 30,**
              
              **Nine
                  Months Ended September 30,****2004**
              
              **2005**
              
              **2004**
              
              **2005****Revenue**Voyage
                  revenue
              $
              48,867,463
              
              $
              39,243,430
              
              $
              118,139,110
              
              $
              129,363,294Time
                  charter revenue
              
              7,196,867
              
              
              19,262,340
              
              
              31,934,372
              
              
              50,486,985Other
                  revenue
              
              6,952
              
              
              513,020
              
              
              266,802
              
              
              598,276Total
                  revenue
              
              56,071,282
              
              
              59,018,790
              
              
              150,340,284
              
              
              180,448,555**Operating
                  expenses**Voyage
              
              17,601,897
              
              
              17,539,870
              
              
              44,029,039
              
              
              53,861,763Vessel
              
              22,475,088
              
              
              16,063,285
              
              
              54,737,571
              
              
              52,246,517Depreciation
                  and amortization of vesselsand
                  other fixed assets
              
              3,060,874
              
              
              5,486,438
              
              
              6,440,294
              
              
              11,791,899Management
                  fees
              
              1,150,979
              
              
              58,635
              
              
              3,138,665
              
              
              2,624,391General
                  and administrative
              
              1,243,393
              
              
              5,015,531
              
              
              5,165,778
              
              
              11,486,014Total
                  operating expenses
              
              45,532,231
              
              
              44,163,759
              
              
              113,511,347
              
              
              132,010,584Income
                  from operations
              
              10,539,051
              
              
              14,855,031
              
              
              36,828,937
              
              
              48,437,971**Other
                  (expenses) and income**Interest
                  expense
              
              (1,359,270
              )
              
              (2,817,468
              )
              
              (3,436,090
              )
              
              (6,621,532
              )Other
                  income
              
              21,481
              
              
              239,227
              
              
              38,851
              
              
              411,148Total
                  other expenses, net
              
              (1,337,789
              )
              
              (2,578,241
              )
              
              (3,397,239
              )
              
              (6,210,384
              )Net
                  income
              
              9,201,262
              
              
              12,276,790
              
              
              33,431,698
              
              
              42,227,587Amount
                  allocated to participating preferred shareholders
              
              3,067,087
              
              
              -
              
              
              8,426,620
              
              
              6,092,408Net
                  income available for common shareholders
              $
              6,134,175
              
              $
              12,276,790
              
              $
              25,005,078
              
              $
              36,135,179Earnings
                  per shareNet
                  income per common shareBasic
              $
              0.60
              
              $
              0.44
              
              $
              2.45
              
              $
              1.82Diluted
              $
              0.30
              
              $
              0.44
              
              $
              1.23
              
              $
              1.57Weighted
                  average common shares outstandingBasic
              
              10,187,795
              
              
              27,983,829
              
              
              10,187,795
              
              
              19,809,880Diluted
              
              20,385,775
              
              
              28,088,329
              
              
              20,385,775
              
              
              23,037,937









*The
      accompanying notes are an integral part of these consolidated financial
      statements*




Table
          of Contents
 4


**TBS
      INTERNATIONAL LIMITED AND SUBSIDIARIES**


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS
      (UNAUDITED)**


**Nine
                      months ended September 30,****2004**
                  
                  **2005****Cash
                      flows from operating activities**Net
                      income
                  $
                  33,431,698
                  
                  $
                  42,227,587Adjustments
                      to reconcile net income to net cashprovided
                      by operating activitiesDepreciation
                      and amortization
                  
                  6,440,294
                  
                  
                  11,791,899Stock
                      issued to employees
                  
                  
                  
                  
                  1,069,000Changes
                      in operating assets and liabilities(Increase)
                      decrease in charter hire receivable
                  
                  (251,325
                  )
                  
                  1,213,625Increase
                      in claims receivable
                  
                  (7,042
                  )
                  
                  (230,091
                  )Increase
                      in due from agents
                  
                  (139,095
                  )
                  
                  (274,621
                  )(Increase)
                      decrease in other receivables
                  
                  (1,403,633
                  )
                  
                  53,383Increase
                      in inventories
                  
                  (971,948
                  )
                  
                  (2,348,657
                  )(Increase)
                      decrease in prepaid expenses
                  
                  (1,267,099
                  )
                  
                  1,336,094Increase
                      (decrease) in accounts payable
                  
                  487,382
                  
                  
                  (900,922
                  )Increase
                      in accrued expenses
                  
                  4,546,486
                  
                  
                  3,331,659Decrease
                      in voyages in progress
                  
                  (7,631
                  )
                  
                  (1,308,702
                  )Increase
                      (decrease) in advances from/to affiliates, net
                  
                  1,676,906
                  
                  
                  (2,397,293
                  )Net
                      cash provided by operating activities
                  
                  42,534,993
                  
                  
                  53,562,961**Cash
                      flows from investing activities**Vessels
                      acquisition/capital improvement costs
                  
                  (34,477,815
                  )
                  
                  (143,735,228
                  )Deposits
                      for vessel purchases
                  
                  (1,930,000
                  )
                  
                  (1,850,000
                  )Restricted
                      cash for litigation
                  
                  
                  
                  
                  (532,500
                  )Payment
                      for purchase of TBS Shipping Services Inc and Roymar Ship Management
                      Inc.,
                      net of cash acquired of $801,594.
                  
                  -
                  
                  
                  (7,289,895
                  )Net
                      cash used in investing activities
                  
                  (36,407,815
                  )
                  
                  (153,407,623
                  )**Cash
                      flows from financing activities**Dividends
                      paid
                  
                  (150,000
                  )
                  
                  (150,000
                  )Proceeds
                      on sale of TBS International Limited stock owned by
                      subsidiaries
                  
                  
                  
                  
                  795,336Proceeds
                      from issuance of stock in initial public offering and exercise
                      of series A
                      warrants, net of offering costs
                  
                  
                  
                  
                  60,841,169Repayment
                      of debt principal
                  
                  (239,422
                  )
                  
                  (20,805,260
                  )Proceeds
                      from debt
                  
                  29,375,000
                  
                  
                  77,500,000Proceeds
                      from revolving debt facility
                  
                  
                  
                  
                  12,000,000Repayment
                      of revolving debt facility
                  
                  
                  
                  
                  (12,000,000
                  )Reduction
                      of obligations under capital leases
                  
                  (6,696,466
                  )
                  
                  (4,987,438
                  )Net
                      cash provided by financing activities
                  
                  22,289,112
                  
                  
                  113,193,807Net
                      increase in cash and cash equivalents
                  
                  28,416,290
                  
                  
                  13,349,145Cash
                      and cash equivalents beginning of period
                  
                  8,640,531
                  
                  
                  21,674,204Cash
                      and cash equivalents end of period
                  $
                  37,056,821
                  
                  $
                  35,023,349**Supplemental
                      cash flow information**Cash
                      paid for interest
                  $
                  2,104,792
                  
                  $
                  5,848,391


*The
      accompanying notes are an integral part of these consolidated financial
      statements*


Table
          of Contents
 5
 **TBS
        INTERNATIONAL LIMITED AND SUBSIDIARIES**


**CONSOLIDATED
      STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
      (UNAUDITED)**




**Common**
              
              
              
              
              
              
              
              
              
              **Additional****Shares**
              
              
              
              **Preferrence**
              
              **Warrants**
              
              
              
              **Paid-in**
              
              **Retained****Shares**
              
              **Amount**
              
              **Shares**
              
              **Shares**
              
              **Amount**
              
              **Capital**
              
              **Earnings**
              
              **Total**Balance
                  at December 31, 2004
              
              
              4,000,000
              
              $
              16,000
              
              $
              4,000
              
              
              2,666,658
              
              $
              800,000
              
              $
              24,357,936
              
              $
              36,781,309
              
              $
              61,959,245Conversion
                  of preference shares to common shares
              
              
              2,000,000
              
              
              8,000
              
              
              (4,000
              )
              
              
              
              
              
              
              
              (4,000
              )
              
              
              
              
              -Additional
                  shares issuable under anti-dillution provisions of warrant agreement
              
              
              
              
              
              
              
              
              
              
              
              1,132,172
              
              
              
              
              
              
              
              
              
              
              
              -Redesignation
                  and change in par value of common shares from $.004 to $.01
              
              
              (3,600,000
              )Stock
                  split
              
              
              12,881,692
              
              
              128,817
              
              
              
              
              
              
              
              
              
              
              
              (128,817
              )
              
              
              
              
              -Change
                  in number on shares issuable under warrants due to change in par
                  value of
                  common shares and stock split
              
              
              
              
              
              
              
              
              
              
              
              4,488,305
              
              
              
              
              
              
              
              
              
              
              
              -Exersice
                  of Series A warrants
              
              
              5,413,265
              
              
              54,133
              
              
              
              
              
              (5,413,265
              )
              
              (388,812
              )
              
              388,812
              
              
              
              
              
              54,133Cancellation
                  of Series A warrants
              
              
              
              
              
              
              
              
              
              
              
              (1,687,590
              )
              
              (121,212
              )
              
              121,212
              
              
              
              
              
              -Cancellation
                  of Series B & C warrants
              
              
              
              
              
              
              
              
              
              
              
              (897,427
              )
              
              (269,229
              )
              
              269,229
              
              
              
              
              
              -Initial
                  public offering
              
              
              7,000,000
              
              
              70,000
              
              
              
              
              
              
              
              
              
              
              
              65,030,000
              
              
              
              
              
              65,100,000Stock
                  offering costs
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (4,312,964
              )
              
              
              
              
              (4,312,964
              )Stock
                  issued to employees as payroll
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              1,069,000
              
              
              
              
              
              1,069,000Proceeds
                  on sale of TBS International Limited stock owned by subsidiaries
                  in
                  connection with intial public offering
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              795,336
              
              
              
              
              
              795,336Net
                  income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              42,227,587
              
              
              42,227,587Dividends
                  paid
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (150,000
              )
              
              (150,000
              )Balance
                  at September 30, 2005
              
              
              27,694,957
              
              $
              276,950
              
              $
              -
              
              
              288,853
              
              $
              20,747
              
              $
              87,585,744
              
              $
              78,858,896
              
              $
              166,742,337


*The
        accompanying notes are an integral part of these consolidated financial
        statements* ****


Table
          of Contents
 6


**TBS
      INTERNATIONAL LIMITED AND SUBSIDIARIES**


**NOTES
      TO UNAUDITED CONSOLIDATED FINANCIAL
      STATEMENTS**





**Note
      1 — Basis of Presentation:**




TBS
      International Limited (the "Company") is an ocean transportation services
      company that offers worldwide shipping solutions through liner, parcel, bulk
      and
      vessel chartering services. Substantially all the related corporations of the
      Company are foreign corporations and conduct their business operations
      worldwide. The accompanying unaudited consolidated financial statements have
      been prepared in accordance with generally accepted accounting principles for
      interim financial information and with the instructions to Form 10-Q and Article
      10 of Regulation S-X. Accordingly, they do not include all of the information
      and footnotes required by generally accepted accounting principles for complete
      financial statements. In the opinion of management, all adjustments (consisting
      of normal recurring accruals) considered necessary for a fair presentation
      have
      been included. Operating results for the nine-month period ended September
      30,
      2005 are not necessarily indicative of the results that may be expected for
      the
      year ended December 31, 2005.




The
      balance sheet at December 31, 2004 has been derived from the audited financial
      statements at that date, but does not include all of the information and
      footnotes required by generally accepted accounting principles for complete
      financial statements.




For
      further information, refer to the consolidated financial statements and
      footnotes thereto for the year ended December 31, 2004 included in the Company's
      filing on Form 8-K filed on July 29, 2005.




**Note
      2 — Initial Public Offering**




On
      June
      29, 2005, the Company completed its initial public offering. In this offering,
      the Company issued and sold 7,000,000 Class A common shares, par value $0.01
      per
      share, for $10.00 per share. The proceeds to the Company, after underwriting
      fees but prior to deducting offering expenses, totaled $65,100,000. The amounts
      shown in the accompanying consolidated statement of shareholders’ equity, as
      contributions to additional paid-in capital, represent payments received for
      the
      issuance of the shares in June 2005, in excess of their par value less offering
      expenses.




**Note
      3 — New Accounting Pronouncements**




In
      May 2005,
      the Financial Accounting Standards Board (‘‘FASB’’) issued SFAS No. 154,
‘‘Accounting *Changes and Error Corrections* ’’
      (‘‘SFAS 154’’), which replaces Accounting Principles Board Opinion (‘‘APB’’) No.
      20 ‘‘Accounting *Changes* ’’,
      and
      SFAS No. 3 ‘‘Reporting *Accounting Changes in Interim Financial Statements* ’’.
      SFAS
      154 changes the requirements for the accounting for and reporting of a change
      in
      accounting principle, and applies to all voluntary changes in accounting
      principles, as well as changes required by an accounting pronouncement in the
      unusual instance that it does not include specific transition provisions.
      Specifically, SFAS 154 requires retrospective application to prior periods
      financial statements, unless it is impracticable to determine the
      period-specific effects or the cumulative effect of the change. SFAS 154 does
      not change the transition provisions of any existing pronouncement. SFAS 154
      is
      effective for the Company for all accounting changes and corrections of errors
      made beginning January 1, 2006.




In
      April
      2005, the Financial Accounting Standards Board ("FASB") issued Interpretation
      No. 47, "Accounting for Conditional Asset Retirement Obligations, an
      interpretation of FASB Statement No. 143”. This interpretation clarifies that an
      entity is required to recognize a liability for the fair value of a conditional
      asset retirement obligation when incurred if the liability's fair value can
      be
      reasonably estimated. It also clarifies when an entity would have sufficient
      information to reasonably estimate the fair value of an asset retirement
      obligation. Effective June 30, 2005, the Company has adopted the provisions
      of
      FIN 47, the adoption of which did not have a material impact on the Company's
      consolidated financial position, results of operations or cash
      flows.


Table
          of Contents
 7




**TBS
      INTERNATIONAL LIMITED AND SUBSIDIARIES**


**NOTES
      TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**




In
      March
      2005, the FASB issued Interpretation No. 46(R)-5 ("FIN 46(R)-5"), Implicit
      Variable Interests under FASB Interpretation No. 46 (revised December 2003),
      " *Consolidation
      of Variable Interest Entities* ".
      FIN
      46(R)-5 is effective for the first reporting period beginning after March 3,
      2005; however, earlier application is permitted for periods for which financial
      statements have not yet been issued. Effective April 1, 2005, the Company has
      adopted the provisions of FIN 46(R), the adoption of which did not have a
      material impact on the Company's consolidated financial position, results of
      operations or cash flows.




In
      December 2004, the FASB issued SFAS No. 123R, Share-Based Payment (‘‘SFAS
      123R’’). SFAS No. 123R revises previously issued SFAS 123 Accounting for
      Stock-Based Compensation, supersedes APB No. 25 Accounting for Stock Issued
      to
      Employees, and amends SFAS Statement No. 95 Statement of Cash Flows. SFAS 123R
      requires the Company to expense the fair value of employee share options and
      other forms of share-based compensation for the annual periods beginning after
      June 15, 2005. The cost will be recognized over the period during which an
      employee is required to provide services in exchange for the award. The
      share-based award must be classified as equity or as a liability and the
      compensation cost is measured based on the fair value of the award at the date
      of the grant. In addition, liability awards will be re-measured at fair value
      each reporting period. The Company currently follows APB Opinion No. 25,
      Accounting for Stock Issued to Employees, in recognizing the expense associated
      with the restricted share awards and utilizes the intrinsic value method. Pro
      forma information is not presented as the application of APB Opinion No. 25,
      utilizing the intrinsic value method, and Financial Accounting Standard No.
      123,
      utilizing fair value base method, would result in the same amount. SFAS 123R
      will not have a significant impact on the Company’s consolidated results of
      operations, cash flows or financial position.




In
      December 2004, the FASB issued SFAS No. 153, ‘‘ *Exchanges
      of Nonmonetary assets* ’’,
      an
      amendment of APB No. 29, ‘‘ *Accounting
      for Nonmonetary Transactions* ’’
      (‘‘SFAS 153’’). The amendments made by SFAS 153 are based on the principle that
      exchanges of nonmonetary assets should be measured based on the fair value
      of
      the assets exchanged. Further, the amendments eliminate the narrow exception
      for
      nonmonetary exchanges of similar productive assets and replace it with a broader
      exception for exchanges of nonmonetary assets that do not have commercial
      substance. The statement is effective for the Company beginning July 1, 2005
      and
      shall be applied prospectively. The effect of the adoption of SFAS 153 is
      immaterial to the Company's consolidated results of operations, cash flows
      or
      financial position.




**Note
      4 — Acquisition of TBS Shipping Services Inc. and Roymar Ship Management,
      Inc.**




In
      connection with
      its initial public offering, the Company acquired all of the outstanding shares
      of common stock of two of its affiliates: TBS Shipping Services Inc. ("TBS
      Shipping Services") and Roymar Ship Management, Inc. ("Roymar"). The transaction
      was accounted for as a purchase combination; accordingly, the results of
      operations of TBS Shipping Services and Roymar have been included in the
      consolidated financial statements since the date of acquisition. TBS Shipping
      Services provides the Company and its subsidiaries with vessel voyage
      operational management, commercial, chartering, agency and brokerage services.
      Roymar acts as technical ship manager for the Company and its subsidiaries.
      The
      Company purchased the stock of TBS Shipping Services and Roymar for $7.3
      million, which represents the purchase price of $7.5 million plus the
      undistributed earning of each company for the period January 1, 2005 through
      the
      date of acquisition of $0.6 million that was paid in September 2005, less net
      cash acquired of $0.8 million. The excess of the purchase price paid over the
      net book value of the acquired companies was $8,425,935, which was recorded
      as
      goodwill. Current assets and liabilities were recorded at fair market value.
      The
      fair market value of office equipment and furnishings approximates their
      carrying value.




Table
          of Contents
 8




**TBS
      INTERNATIONAL LIMITED AND SUBSIDIARIES**


**NOTES
      TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**






Pro
      forma
      information is not presented, as the effects of these acquisitions are not
      material to the Company's consolidated financial position, results of operations
      or operating cash flows in any of the periods presented.




The
      following table summarizes the estimated fair values of assets acquired and
      liabilities assumed at the date of acquisition:




**TBS
                  Shipping**
              
              **Roymar
                  Ship****Description**
              **Services
                  Inc.**
              
              **Management
                  Inc.**
              
              **Total**Current
                  Assets
              $
              1,012,981
              
              $
              200,222
              
              $
              1,213,203Equipment
                  and Furnishings
              
              1,025,816
              
              
              381,562
              
              
              1,407,378Goodwill
              
              6,429,727
              
              
              1,996,208
              
              
              8,425,935Total
                  assets acquired
              
              8,468,524
              
              
              2,577,992
              
              
              11,046,516Liabilities
                  assumed
              
              (2,686,177
              )
              
              (268,850
              )
              
              (2,955,027
              )**Net
                  assets acquired**
              **$**
              **5,782,347**
              
              **$**
              **2,309,142**
              
              **$**
              **8,091,489**




**Note
      5 — Inventories**


Inventories
      consist of the following:




**Description**
              **December
                  31, 2004**
              
              **September
                  30, 2005**Fuel
              $
              2,378,790
              
              $
              4,297,192Lubricating
                  Oil
              
              514,360
              
              
              946,894Other
              
              494,479
              
              
              492,200**TOTALS**
              **$**
              **3,387,629**
              
              **$**
              **5,736,286**






Table
          of Contents
 9


**TBS
      INTERNATIONAL LIMITED AND SUBSIDIARIES**


**NOTES
      TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**




**Note
      6 — Vessels and Other Fixed Assets**




The
      Company acquired two vessels during the three-months ended September 30, 2005,
      and twelve vessels during the nine months ended September 30, 2005, including
      exercising the purchase option under capital lease for the *Rockaway
      Belle* .
      The
      vessels acquired comprised the following:




**Company**
            
            **Vessel**
            
            
            **Date
                Vessel Delivered**
            
            **Purchase
              Price**
            **Estimaed
                Useful Life at time of Acquisition**Chester
                Shipping Corp
            
            Tamoyo
                Maiden
            
            
            18-Jan-05
            $
            8,000,000
            
            12.0Rector
                Shipping Corp
            
            Siboney
                Belle
            
            
            9-Feb-05
            
            8,625,000
            
            13.0Albemarle
                Maritime Corp
            
            Mohawk
                Princess
            
            
            16-Feb-05
            
            12,000,000
            
            7.0Hansen
                Shipping Corp
            
            Ainu
                Princess
            
            
            23-Feb-05
            
            8,625,000
            
            13.0Bristol
                Maritime Corp
            
            Tuscarora
                Belle
            
            
            20-Apr-05
            
            12,750,000
            
            9.3Hudson
                Maritime Corp
            
            Chesapeake
                Belle
            
            
            25-Apr-05
            
            12,750,000
            
            9.4Glenwood
                Maritime Corp
            
            Miami
                Maiden
            
            
            26-Apr-05
            
            12,240,000
            
            9.4Windsor
                Maritime Corp
            
            Shinnecock
                Belle
            
            
            7-Jun-05
            
            15,300,000
            
            10.0Kensington
                Shipping Corp
            
            Maya
                Princess
            
            
            28-Jun-05
            
            15,810,000
            
            6.5**Vessel
              Acquisitions for the six months ended June 30, 2005**
            
            
            
            
            106,100,000Sterling
                Shipping Corp
            
            Biloxi
                Belle
            
            
            12-Jul-05
            
            15,500,000
            
            9.5Remsen
                Navigation Corp
            
            Maori
                Maiden
            
            
            6-Sep-05
            
            13,750,000
            
            9.3**Vessel
              Acquisitions for the three months ended September 30,
              2005**
            
            
            
            
            29,250,000**Vessel
                Acquisitions for the nine months ended September 30,
                2005**
            
            $
            135,350,000




On
      April 22,
      2005, the Company exercised its option to purchase the *Comanche
      Belle* for
      $3,815,000. Delivery is expected to be during the first half of November
      2005.




On
      September
      27, 2005, the Company placed a deposit on the vessel *M.V.
      Ikan Tuxpan* in the
      amount of $1,850,000, which is 10% of the $18,500,000 purchase price. The
      vessel, which will be renamed the *Sioux
      Maiden* ,
      and was
      delivered on November 8, 2005.




On
      October 12, 2005, the Company placed a deposit on the vessel *M.V. Sea
      Cattley* a
      in the
      amount of $1,000,000, which is 10% of the $10,000,000 purchase price. The
      vessel, which will be renamed the *Nyack
      Princess* ,
      and was
      delivered on November 7, 2005.




Depreciation
      and amortization of vessels and other assets was $3,060,874 and $6,440,294,
      respectively, for the three and nine months ended September 30, 2004 and
      $5,486,438 and $11,791,899, respectively, for the three and nine months ended
      September 30, 2005.


Table
          of Contents
 10
 **TBS
        INTERNATIONAL LIMITED AND SUBSIDIARIES**


**NOTES
      TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**




**Note
      7 — Financing**




The
      Company's
      outstanding debt balances were as follows:


**Interest
                    Rate at September 30, 2005**
                
                **December
                    31, 2004**
                
                
                **September
                    30, 2005**Series
                    A, First Preferred Ship MortgageNotes,
                    10% due 2005 to 2007
                
                -
                $
                3,887,439
                
                
                -GMAC
                    credit facility loan,expires
                    June 18, 2009
                
                7.428%
                
                13,437,500
                
                $
                16,456,996Merrill
                    Lynch credit facility loan,expires
                    September 1, 2009
                
                7.654%
                
                14,036,269
                
                
                10,617,407The
                    Royal Bank of Scotland creditfacility
                    loan, expires March 23, 2010
                5.46%
                
                7,150,000
                
                
                6,640,000AIG
                    credit facility loan,expires
                    March 10, 2010
                
                6.68%
                
                -
                
                
                38,054,045Bank
                    of America credit facility loan,expires
                    June 10, 2010
                
                6.240%
                
                -
                
                
                23,437,500Debt
                    balance
                
                
                $
                38,511,208
                
                $
                95,205,948The
                    repayment of debt over the next five years and thereafter is
                    as
                    follows:2005
                    (October 1, 2005 - December 31, 2005)
                
                
                
                $
                5,222,8452006
                
                
                
                
                
                
                28,391,1912007
                
                
                
                
                
                
                21,000,1212008
                
                
                
                
                
                
                18,808,8852009
                
                
                
                
                
                
                16,063,320Thereafter
                
                
                
                
                
                
                5,719,586$
                95,205,948


**Series
      A, First Preferred Ship Mortgage Notes**




In
      connection with a settlement with bondholders made December 19, 2003, the
      Company agreed to provide additional compensation to the existing bondholders
      who accepted a discounted amount from the face of the debt providing certain
      earnings targets were exceeded. This agreement provided for payment of 25%
      of
      adjusted earnings before interest, taxes, depreciation and amortization
      ("EBITDA") (defined below) in excess of $19,000,000 in 2004 and $21,000,000
      in
      2005 to these existing bondholders pro rata. The total payment was capped at
      the
      bondholders pro rata (94.77%) share of $4,102,500 or $3,887,439. Adjusted EBITDA
      was defined as EBITDA for the year, less EBITDA attributable to vessels
      purchased outright or treated as capitalized leases acquired after October
      31,
      2003. At December 31, 2004, there was an accrual of $3,887,439 recorded on
      the
      consolidated balance sheet. The amount was paid on June 30, 2005.


Table
          of Contents
 11


**TBS
      INTERNATIONAL LIMITED AND SUBSIDIARIES**


**NOTES
      TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**




**GMAC
      Credit Facility**




The
      credit facility with GMAC was for the original amount of $22.5 million. The
      Company drew down $15.0 million in July 2004 to replenish the Company's working
      capital in connection with the acquisition of three vessels and $7.5 million
      in
      February 2005 in connection with the acquisition of an additional vessel.
      Interest on loans under the credit facility is at the "Adjusted 30-Day LIBOR,"
      as defined in the loan agreement, plus 3.7% and is payable monthly in arrears.
      Payments of principal are due monthly over 60 months from the draw down date,
      with half of the amount borrowed due over the first 24 months and the balance
      payable over the remaining 36 months. Loans under the credit facility are
      collateralized by First Preferred Ship Mortgages on the vessels *Mohegan
      Princess* , *Tayrona
      Princess* , *Tuckahoe
      Maiden* and *Taino
      Maiden* and
      assignment of freight revenue and insurance on such vessels.


The
      credit
      facility agreement contains certain financial covenants which require that
      the
      Company have fixed charge coverage and funded debt to earnings before interest,
      taxes, depreciation and amortization "EBITDA" ratios within defined limits.
      At
      September 30, 2005, the Company was in compliance with these
      covenants.




**Merrill
      Lynch Credit Facility**




The
      original
      amount of the credit facility with Merrill Lynch was $15.0 million. The Company
      drew down the full facility in August 2004, to replenish the Company's working
      capital in connection with the acquisition of two vessels. Interest is at 7.654%
      and is payable monthly. Payments of principal are due monthly over 60 months
      from the draw down date, with 55% of the amount borrowed due over the first
      24
      months and the balance payable over the remaining 36 months. The credit facility
      is collateralized by First Preferred Ship Mortgages on the vessels *Iroquois
      Maiden* and *Manhattan
      Princess* and
      assignment of freight revenue and insurance on such vessels. The credit facility
      requires that the Company maintain positive working capital.




**The
      Royal Bank of Scotland Credit Facility**




The
      credit facility with The Royal Bank of Scotland was for the original amount
      of
      $7.15 million. The Company drew down the full facility in December 2004, to
      replenish the Company's working capital in connection with the acquisition
      of
      the vessel *Wichita
      Belle* .
      Interest is at LIBOR plus 1.5%, compounded monthly and paid quarterly. Payment
      of principal is due in 20 quarterly installments of $255,000 commencing on
      June
      30, 2005 (six months after drawdown). A balloon installment of $2,050,000 is
      payable with the last quarterly installment on March 23, 2010. The credit
      facility is collateralized by a First Preferred Ship Mortgage on the vessel *Wichita
      Belle* and
      assignment of freight revenue and insurance. The credit facility requires that
      the Company maintain a monthly average of $1,500,000 on deposit with the
      bank.




**AIG
      Credit Facility**




The
      original amount of the credit facility with AIG was $45.0 million. The Company
      drew down $23.5 million in March 2005 to replenish the Company's working capital
      in connection with the acquisition of four vessels and $ 21.5 million in April
      2005 in connection with the acquisition of three vessels. Interest on loans
      under the credit facility is at the 90-Day LIBOR plus 3.15% and is payable
      monthly in arrears. Payments of principal are due monthly over 60 months from
      the draw down date, with 55% of the amount borrowed due over the first 24 months
      and the balance payable over the remaining 36 months. Loans under the credit
      facility are collateralized by First Preferred Ship Mortgages on the vessels: *Siboney
      Belle* , *Ainu
      Princess*,*Tamoyo
      Maiden*,*Mohawk
      Princess*,*Rockaway
      Belle*,*Tuscarora
      Belle*and*Miami
      Maiden*and
      assignment of freight revenue and insurance on such vessels.




Table
          of Contents
 12




**TBS
      INTERNATIONAL LIMITED AND SUBSIDIARIES**


**NOTES
      TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**






The
      credit
      facility agreement contains certain financial covenants which require that
      the
      Company have fixed charge coverage, debt to EBITDA, EBITDA to debt service,
      debt
      to net worth ratios and working capital ratios within defined limits. The
      agreement also requires that the Company maintain minimum cash and cash
      equivalent balances. At September 30, 2005, the Company was in compliance with
      these covenants.




**Bank
      of America Credit Facility**




The
      credit facility with Bank of America is for $25.0 million. The Company drew
      down
      $7.8 million in June 2005 for working capital use and the balance of $17.2
      million on July 21, 2005, to replenish the Company's working capital in
      connection with the acquisition of the vessels *Shinnecock
      Belle,*  *Maya
      Princess* and *Chesapeake
      Belle* .
      Interest on loans under the credit facility is at adjusted LIBOR plus 2.75%
      or
      the base rate, as defined in the agreement, plus 1.25% as selected by the
      Company at the time of the drawdown and is payable monthly in arrears. Payments
      of principal are due quarterly over 20 quarters, with 50% of the amount borrowed
      due over the first eight quarters, 40% over the next eight quarters and the
      balance payable over the remaining four quarters. The loan under the credit
      facility is collateralized by First Preferred Ship Mortgages on the vessels *Shinnecock
      Belle,*  *Maya
      Princess* and *Chesapeake
      Belle* and
      assignment of freight revenue and insurance.




The
      credit facility agreement contains certain financial covenants which require
      that the Company have fixed charge coverage and debt to EBITDA ratios and net
      worth within defined limits. The agreement also requires that the Company
      maintain minimum cash and cash equivalent balances. At September 30, 2005,
      the
      Company was in compliance with these covenants.




In
      addition, certain of the above credit facility agreements contain restrictive
      covenants which among other things, require minimum collateral coverage,
      restrict the payment of dividends and restrict leverage, investment and capital
      expenditures without consent of the lender. Certain agreements require mandatory
      prepayment or delivery of additional security in the event that the fair market
      value of the acquired vessels falls below limits specified in the loan
      agreements.




**Citibank
      Revolving Credit Facility**




On
      June
      14, 2005, two of the Company's subsidiaries, Newkirk Navigation Corp. and
      Frankfort Maritime Corp. entered into a $12.0 million revolving credit facility
      with Citibank, N.A., and, on June 17, 2005, borrowed an aggregate of $12.0
      million on the facility. The term of the revolving credit facility commenced
      on
      June 17, 2005 (date of first borrowing), and will end on May 31, 2006.
      Outstanding borrowings under the revolving credit facility bear interest, at
      the
      borrower's option at the time of borrowing either at (i) the higher of a
      floating base rate determined by Citibank and an average three-month certificate
      of deposit rate plus 0.5%, or (ii) at a rate equal to LIBOR plus 2.0%. The
      borrowers must pay a commitment fee of 0.25% on any amounts not drawn down
      under
      this facility. Interest on amounts outstanding under the revolving credit
      facility is payable every three months. Advances may be prepaid at any time
      without penalty and must be repaid in full no later than May 31, 2006. The
      Company and two of its subsidiaries are guarantors under this facility. The
      facility is collateralized by First Preferred Ship Mortgages on the vessels *Dakota
      Belle* and
      the *Shawnee
      Princess* .
      On June
      30, 2005 the borrowing under the facility was repaid.




Table
          of Contents
 13


**TBS
      INTERNATIONAL LIMITED AND SUBSIDIARIES**


**NOTES
      TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**




**Note
      8 — Equity Transactions:**




**Preference
      Shares**




On
      June
      29, 2005, in connection with the Company's initial public offering, the holders
      of the Company's convertible preference shares exercised their right to convert
      their 1,000,000 issued and outstanding convertible preference shares into
      2,000,000 Class C common shares. Conversion of the preference shares into Class
      C common shares constituted payment in full of the preference
      shares.




**Other
      Equity Transactions**




On
      June
      29, 2005, in connection with the Company's initial public offering, the Company
      consolidated its 1,500,000 old Class A, 1,500,000 old Class B and 3,000,000
      old
      Class C common shares (after giving effect to the conversion of the preference
      shares) on a 2.5-for-1 basis to 600,000 old Class A, 600,000 old Class B and
      1,200,000 old Class C common shares, for the purpose of changing the par value
      of the Company's common shares from $.004 per share to $.01 per share, and
      redesignated the Company's outstanding old Class A (600,000 shares), old Class
      B
      (600,000 shares) and old Class C common (1,200,000 shares) shares as 2,400,000
      new Class B common shares. Concurrent to the consolidation and redesignation
      of
      common shares, the Company issued 2.167 new Class A common shares and 3.20
      additional new Class B common shares for each new Class B share
      outstanding.




**Warrants**




At
      December 31, 2004, 1,769,231 Series A, 411,756 Series B and 485,671 Series
      C
      warrants were outstanding. The warrants were issued by the Company in connection
      with its emergence from bankruptcy, and were valued at $800,000 at the time
      of
      issuance. The fair value was established based upon a cash flow model as
      determined by a third-party appraiser, and accepted by the bondholders, the
      U.S.
      Bankruptcy Court and the Company. The warrant agreement includes an
      anti-dilution provision that adjusts the number of shares issuable upon exercise
      of the warrants whenever the Company issues additional common shares or engages
      in similar transactions. The Series A warrants were exercisable if the first
      Preferred Ship Mortgage Notes were not paid in full by February 8, 2005, and,
      when exercised, would represent approximately 27% of the total outstanding
      shares of the Company on a fully diluted basis. The Series B warrants were
      exercisable if the preference shares were not paid in full by February 8, 2006,
      and, when exercised, would represent approximately 6% of the total outstanding
      common shares of the Company on a fully diluted basis. The Series C warrants
      were exercisable only if the exercise conditions of the Series A and Series
      B
      warrants were satisfied and, when exercised, would represent approximately
      7% of
      the total outstanding common shares of the Company.




The
      first
      Preferred Ship Mortgage Notes were paid on June 29, 2005 (after February 8,
      2005) and accordingly, the Series A warrants became exercisable. As noted above,
      in connection with the initial public offering, the holders of the Company's
      convertible preference shares exercised their right to convert the convertible
      preference shares into Class C Common shares. As the conversion of the
      preference shares constituted payment in full of the preference shares, the
      exercise condition for the Series B and Series C warrants became incapable
      of
      being met as of June 29, 2005. As a result of the anti-dilution provisions
      of
      the warrant agreement, following the conversion of all the outstanding
      preference shares into Class C common shares, the number of common shares
      issuable upon exercise of all outstanding Series A warrants increased from
      1,769,231 to 2,167,539 Class C common shares. The issuance of 7,000,000 new
      Class A common shares in connection with the initial public offering further
      increased the number of shares issuable upon exercise of all outstanding Series
      A warrants from 2,167,539 to 2,901,403 Class C common shares. The number of
      shares issuable under the Series A warrants were 2,515,368 new Class A common
      shares and 4,874,357 new Class B common shares, after giving effect to the
      common share conversion described above in Note 8 — Equity Transactions — Other
      Equity Transactions.




Table
          of Contents
 14


**TBS
      INTERNATIONAL LIMITED AND SUBSIDIARIES**


**NOTES
      TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**






On
      June 29
      2005, Series A warrants to purchase 2,125,392 Class C common shares, or 1,842606
      new Class A and 3,576,590 new Class B common shares, held by certain existing
      shareholders, were exercised. In addition, in connection with the initial public
      offering, the 662,952 Series A warrants to purchase 574,434 new Class A and
      1,113,155 new Class B common shares held by these shareholders were
      cancelled.




At
      September 30, 2005, there were outstanding exercisable warrants to purchase
      98,328 new Class A and 190,544 new Class B common shares, held by parties not
      affiliated with existing shareholders. The warrants are exercisable for a period
      of ten years following the date on which their exercise condition was met
      (February 8, 2005), at a price of $.01 per share.




**Note
      9 — New Class A and New Class B Common Shares**




The
      Company has two classes of common shares that are issued and outstanding -
      Class
      A and Class B. The Class A common shares and Class B common shares have
      identical rights to dividends and surplus, and assets on liquidation; however,
      the holders of Class A common shares are entitled to one vote for each Class
      A
      common share on all matters submitted to a vote of holders of common shares,
      while holders of Class B common shares are entitled to one-half of a vote for
      each Class B common share.




The
      holders of Class A common shares can convert their Class A common shares into
      Class B common shares, and the holders of Class B common shares can convert
      their Class B common shares into Class A common shares at any time. Further,
      the
      Class B common shares will automatically convert into Class A common shares
      upon
      transfer to any person other than another holder of Class B common shares,
      in
      each case as long as the conversion will not cause the Company to become a
      controlled foreign corporation, as defined in the Internal Revenue Code or
      the
      Class A common shares cease to be regularly traded on an established securities
      market for purposes of Section 883 of the Internal Revenue Code.




**Note
      10 — 2005 Equity Incentive Plan**




The
      Company adopted an Equity Incentive Plan in 2005, which authorizes the grant
      of
      "non-qualified" shares to employees, independent directors and affiliates.
      Under
      the incentive plan, in connection with its initial public offering, the Company
      issued 100,000 restricted Class A common shares, vesting in equal installments
      over four years commencing one year after issuance, to its executive vice
      president and chief financial officer, 106,900 restricted Class A common shares
      to employees of Roymar Ship Management Inc. ("Roymar") and TBS Shipping Services
      Inc. ("TBS Shipping Services") and 4,500 restricted Class A common shares to
      its
      independent directors, all vesting one year after issuance. The aggregate value
      of restricted Class A common shares issued to the chief financial officer,
      employees and independent directors was approximately $2.1 million. The
      restricted share award to the chief financial officer will result in a charge
      to
      compensation expense and an increase in paid-in capital of $250,000 in each
      of
      the next four years. The Company’s consolidated financial statements for the
      three and nine months ended September 30, 2005, include compensation costs
      of
      $62,500. In connection with shares issued to Roymar and TBS Shipping Services
      employees, the Company used the net proceeds from the sale of 85,520 Class
      A
      common shares held by Roymar and TBS Shipping Services prior to the offering,
      or
      approximately $0.8 million, to pay the federal, state and local employment
      taxes
      and income withholding taxes associated with the issue of the 106,900 Class
      A
      common shares to employees of Roymar and TBS Shipping Services. The share award
      to Roymar and TBS Shipping Services employees resulted in a one-time charge
      to
      compensation expense of $1.9 million and an increase to paid-in capital, which
      have been included in the consolidated financial statements for the nine months
      ended September 30, 2005. Employees of Roymar and TBS Shipping Services have
      agreed that, without the Company's prior consent, they will not sell any of
      the
      shares issued to them for a two-year period. The restricted share award to
      the
      independent directors will result in a charge to compensation expense and an
      increase in paid-in capital of $45,000. The Company’s consolidated financial
statements
      for the three and nine months ended September 30, 2005, include compensation
      costs of $11,250.




Table
          of Contents
 15


**TBS
      INTERNATIONAL LIMITED AND SUBSIDIARIES**


**NOTES
      TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**




**Note
      11 — Earnings Per Share**




**Three
                  Months Ended September 30,**
              
              **Nine
                  Months Ended September 30,****2004**
              
              **2005**
              
              **2004**
              
              **2005****Numerators:**Net
                  income
              $
              9,201,262
              
              $
              12,276,790
              
              $
              33,431,698
              
              $
              42,227,587Net
                  income allocated to preference shares
              
              3,067,087
              
              
              -
              
              
              8,426,620
              
              
              6,092,408Net
                  income available for common shareholders (basic and
                  diluted)
              $
              6,134,175
              
              $
              12,276,790
              
              $
              25,005,078
              
              $
              36,135,179**Denominators:**Basic-weighted
                  average common shares outstanding
              
              10,187,795
              
              
              27,983,829
              
              
              10,187,795
              
              
              19,809,880Restricted
                  stock issued to employees
              
              -
              
              
              104,500
              
              
              -
              
              
              35,982Dilutive
                  effect of Series A, B & C warrants
              
              10,197,980
              
              
              -
              
              
              10,197,980
              
              
              3,192,075Diluted-weighted
                  average common shares and potential common shares
                  outstanding
              
              20,385,775
              
              
              28,088,329
              
              
              20,385,775
              
              
              23,037,937**Income
                  per common share:**Basic
              $
              0.60
              
              $
              0.44
              
              $
              2.45
              
              $
              1.82Diluted
              $
              0.30
              
              $
              0.44
              
              $
              1.23
              
              $
              1.57




As
      described above in Note 8 — Equity Transactions — Preference Shares, the
      convertible preference shares were converted into Class C common shares on
      June
      29, 2005 in connection with the initial public offering. Prior to conversion,
      each convertible preference share was convertible into two Class C common
      shares. If dividends were declared on the common shares, the preference shares
      would have been entitled to receive dividends based on the number of Class
      C
      common shares that the preference shares were convertible to. The basic earnings
      per share calculation reflects the rights of the respective classes of shares
      to
      receive distributions of net income (net losses are not allocated to preference
      shares) using the "two-class method" described in FAS 128, ‘‘ *Earnings
      Per Share* ’’.
      The
      Company has allocated the pro-rata share of net income to the convertible
      preference shares on a percentage of total weighted average common shares
      outstanding plus the common-equivalent number of weighted average preferred
      shares outstanding.




During
      the three months ended September 30, 2004 and the nine months ended September
      30, 2004 and 2005 the convertible preference shares, which were amended on
      March
      30, 2004 to permit conversion to common shares, would have added 5,093,898,
      3,433,250 and 3,339,955 common shares on a weighted average basis, respectively,
      to diluted shares outstanding. These shares were not included in the diluted
      earnings per share calculation because the effect would have been anti-dilutive.
      During the three months ended September 30, 2005, no shares were added because
      the convertible shares were converted to Class C common shares on June 29,
      2005
      as noted above.




Table
          of Contents
 16


**TBS
      INTERNATIONAL LIMITED AND SUBSIDIARIES**


**NOTES
      TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**




Effective
      June 29, 2005, the closing date of the Company's initial public offering, the
      Company adopted new corporate Bye-laws which resulted in the consolidation
      and
      redesignation of shares. The Company redesignated its 1,500,000 Class A,
      1,500,000 Class B and 3,000,000 Class C common shares (after giving effect
      to
      the conversion of the preference shares) on a 2.5-for-1 basis to 600,000 old
      Class A, 600,000 old Class B and 1,200,000 old Class C common shares, for the
      purpose of changing the par value of the Company's common shares from $.004
      per
      share to $.01 per share, and consolidated the Company's outstanding old Class
      A,
      Class B and Class C common shares as 2,400,000 new Class B common shares.




Concurrently
      it issued approximately 2.167 new Class A common shares and 3.20 additional
      new
      Class B common shares for each new Class B share outstanding following the
      consolidation. The change in common shares have been retroactively adjusted
      for
      all financial statements presented for the purpose of calculating basic and
      diluted earnings per share.




The
      Series A warrants were exercisable for a total of 7,389,725 common shares as
      adjusted for the redesignated and consolidated shares described above and
      additional shares that are exercisable pursuant to the warrant agreement. The
      Series A warrant exercise condition was satisfied on February 8, 2005, and
      the
      shares subject to these warrants have been treated as outstanding for purposes
      of basic earnings per share for the period beginning February 8, 2005 because
      they are issuable for nominal consideration upon exercise of the warrants.
      Dilutive effect of Series A, B and C warrants is reduced to the extent that
      common shares issuable on the exercise of Series A warrants are already included
      in basic weighted average common shares outstanding.




On
      June
      29, 2005, certain shareholders who also held Series A warrants exercised their
      warrants to purchase 5,413,265 common shares; concurrently they cancelled Series
      A warrants to purchase 1,687,589 shares. At September 30, 2005 exercisable
      warrants were outstanding to purchase 98,328 new Class A and 190,544 new Class
      B
      common shares, which were held by parties not affiliated with our existing
      shareholders. On June 29, 2005, 100,000 and 4,500 restricted Class A common
      shares were issued to an officer and to outside directors,
      respectively.




**Note
      12 — Contingencies**




**Litigation**




In
      connection with the acquisition of the vessel *Sea
      Pantheon* renamed *Tamoyo
      Maiden* the
      Company is seeking damages for the cost of repairs and loss of hire related
      to
      ballast tank contamination discovered after delivery of the vessel. The Company,
      through its subsidiary, had an associated vessel that is owned by the seller
      arrested to secure its claim. That vessel was released upon the seller providing
      a bank guarantee in the amount of $2.1 million. The seller alleged damages
      due
      to the arrest of the associated vessel and the Company, as required under
      English law, placed $750,000 as counter-security to provide for estimated
      arbitration/litigation costs. English legal counsel, who is pursuing the
      Company's claim for damages, obtained a reduction of $217,500 in the amount
      of
      the counter-security to $532,500.




The
      Company is periodically a defendant in cases involving personal injury and
      other
      matters that arise in the normal course of business. While any pending or
      threatened litigation has an element of uncertainty, the Company believes that
      the outcome of these lawsuits or claims, individually or combined, will not
      materially adversely affect the consolidated financial position, results of
      operations or cash flows of the Company.




**Note
      13 — Business Segment**




The
      Company is managed as a single business unit that provides worldwide ocean
      transportation of dry cargo service to its customers through the use of owned
      and chartered vessels. The vessels are operated as one fleet and when making
      resource allocation decisions, our chief operating decision maker evaluates
      voyage profitability data, which considers vessel type and route economics,
      but
      gives no weight to the financial impact of the resource allocation decision
      on
      an individual vessel basis. The Company's objective in making resource
      allocation decisions is to maximize its consolidated financial results, not
      the
      individual results of the respective vessels or routes.


Table
          of Contents
 17




**TBS
      INTERNATIONAL LIMITED AND SUBSIDIARIES**


**NOTES
      TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**






The
      Company transports cargo throughout the world, including the U.S. The amount
      of
      voyage revenue generated in foreign countries (other than the U.S.) is $44.6
      million and $36.1 million for the three months ended September 30, 2004 and
      2005
      and $104.6 million and $118.6 million for the nine months ended September 30,
      2004 and 2005, respectively.




Revenue
      was generated in the following principal foreign geographic areas:




**Three
                Months Ended September 30,**
            
            **Nine
                Months Ended September 30,****Country**
            **2004**
            
            **2005**
            
            **2004**
            
            **2005**Brazil
            $
            14,530,685
            
            $
            11,824,859
            
            $
            32,295,570
            
            $
            39,038,774Japan
            
            6,123,833
            
            
            6,158,359
            
            
            15,554,631
            
            
            20,506,609Chile
            
            5,292,877
            
            
            5,951,122
            
            
            13,803,313
            
            
            17,156,671Peru
            
            6,372,845
            
            
            2,565,721
            
            
            9,864,996
            
            
            11,548,597United
                Arab Emirates
            
            3,431,934
            
            
            522,935
            
            
            7,643,242
            
            
            655,879Venezuela
            
            1,644,939
            
            
            2,712,188
            
            
            6,049,404
            
            
            6,900,862Korea
            
            2,698,567
            
            
            1,936,051
            
            
            5,367,820
            
            
            5,233,551China
            
            1,352,001
            
            
            1,835,341
            
            
            4,423,281
            
            
            8,070,857Others
            
            3,177,056
            
            
            2,633,551
            
            
            9,595,645
            
            
            9,443,115**$**
            **44,624,737**
            
            **$**
            **36,140,127**
            
            **$**
            **104,597,902**
            
            **$**
            **118,554,915**







Revenue
      is
      attributed to these countries based on the location where the cargo is loaded.
      The difference between total voyage revenues and total revenue by country is
      revenue generated from U.S. voyages. Time charter revenue by country cannot
      be
      allocated because the Company does not control the itinerary of the
      vessel.




One
      customer accounted for 10.8% and 21.3% of charter hire receivables at December
      31, 2004 and September 30, 2005, respectively. One customer accounted for 7.1%
      and 17.3% of voyage and time charter revenue for the
      three
      months ended September 30, 2004 and 2005, respectively. One customer accounted
      for 7.0 % and 12.5 % of voyage and time charter revenue for the nine months
      ended September 30, 2004 and 2005, respectively.




Table
          of Contents
 18


**Item
      2.    Management's Discussion and Analysis of
      Financial Condition and Results of Operations**




This
      Quarterly Report on Form 10-Q contains forward-looking statements within the
      meaning of the Private Securities Litigation Reform Act of 1995. These
      statements are only our management's current expectations. They are based on
      our
      management's beliefs and assumptions and on information currently available
      to
      our management. Forward-looking statements include, among other things, the
      information concerning our possible or assumed future results of operations,
      business strategies, financing plans, competitive position, potential growth
      opportunities and the effects of future regulation and competition.
      Forward-looking statements include all statements that are not historical facts
      and can be identified by the use of forward-looking terminology such as the
      words "anticipates," "believes," "estimates," "expects," "future," "intends,"
      "plans" and similar terms.




Forward-looking
      statements involve risks, uncertainties and assumptions. Although the Company
      does not make forward-looking statements unless it believes it has a reasonable
      basis for doing so, it cannot guarantee their accuracy. Actual results may
      differ materially from those expressed in these forward-looking statements
      due
      to a number of uncertainties and risks, including the risks described in our
      prospectus and other unforeseen risks. You should not rely on any
      forward-looking statements.




***Overview***




We
      are an
      ocean transportation services company that offers worldwide shipping solutions
      through liner, parcel, bulk and vessel chartering services. We offer our
      services globally in more than ten countries to over 300 customers through
      a
      network of affiliated service companies.




Our
      financial results are largely driven by the following factors:




macroeconomic
              conditions in the geographic regions where we operate;
        general
              economic conditions in the industries in which our customers
              operate;
        changes
            in our freight and sub-time charter rates — rates we charge for vessels we
            charter out — and, in periods when our voyage and vessel expenses increase,
            our ability to raise our rates to pass such cost increases through to
            our
            customers;
        the
            extent to which we are able to efficiently utilize our controlled fleet
            and
            optimize its capacity; and
        the
            extent to which we can control our fixed and variable costs, including
            those
            for port charges, stevedore and other cargo-related expenses, and fuel
            and
            commission expenses.


We
      completed
      our initial public offering on June 29, 2005. Our historical consolidated
      financial statements for the period prior to June 29, 2005 show our results
      of
      operations as a private company. After completion of the offering, we became
      a
      public company and we estimate that the incremental costs of complying with
      our
      new public company reporting obligations will be approximately $2.0 million
      per
      year.




***Recent
      Events***




On
      October 11, 2005, the Company announced that it expanded its fleet of vessels
      by
      agreeing to acquire the bulk carrier *M.V.
      Sea Cattleya* (38,885
      dwt) which will be renamed the *Nyack
      Maiden* ,
      for
      $10.0 million. The Company expects to fund the acquisition using proceeds from
      its recent initial public offering. The vessel was delivered on November 7,
      2005.




The
      Company announced on September 28, 2005, that it agreed to acquire the bulk
      carrier *M.V.
      Ikan Tuxpan* (42,248
      dwt) which will be renamed the *Sioux
      Maiden* ,
      for
      $18.5 million. The Company expects to fund the acquisition using proceeds from
      its initial public offering. The vessel was delivered on November 8, 2005.




On
      September 7, 2005,
      the Company announced that it took delivery of the bulk carrier *M.V.
      Tronador*,
      (37,700
      dwt) which was renamed the*Maori
      Maiden*,
      for
      $13.8 million. This was the first vessel purchased by the Company using the
      proceeds from the Company's recent initial public offering.


Table
          of Contents
 19




***Results
      of Operations***




**Components
      of revenue and expense**




We
      report
      our revenue as voyage revenue, reflecting the operations of our vessels that
      are
      not chartered out, and charter revenue, reflecting the operations of our vessels
      that have been chartered out to third parties. Voyage revenue and expenses
      for
      each reporting period include estimates for voyages in progress at the end
      of
      the period. Estimated profits from voyages in progress are recognized on a
      percentage of completion basis by prorating the estimated final voyage revenue
      and expenses using the ratio of voyage days completed through period end to
      total voyage days. When a loss is forecast for a voyage, the full amount of
      the
      anticipated loss is recognized in the period in which that determination is
      made. Revenue from time charters in progress is calculated using the daily
      charter hire rate, net of daily expenses multiplied by the number of voyage
      days
      on-hire through period end.




***Voyage
      revenue*** consists
      of freight charges paid to our subsidiaries for the transport of customers'
      cargo. The key factors driving voyage revenue are the number of vessels in
      the
      fleet, the days on hire and the freight rates. The following table sets forth
      these factors for each of the three and nine months ended September 30, 2004
      and
      2005.




**Three
                Months Ended September 30,**
            
            **Nine
                Months Ended September 30,****2004**
            
            **2005**
            
            **2004**
            
            **2005**Number
                of vessels (1)
            
            21
            
            
            18
            
            
            17
            
            
            18Freight
                voyage days (2)
            
            1,850
            
            
            1,627
            
            
            4,570
            
            
            4,779Days
                on hire (3)
            
            1,959
            
            
            1,686
            
            
            4,737
            
            
            5,019Freight
                Rates (4)For
                all cargoes
            $
            38.32
            
            $
            52.28
            
            $
            39.97
            
            $
            58.29Excluding
                aggregates
            $
            53.09
            
            $
            56.21
            
            $
            51.59
            
            $
            60.12





(1)
      Weighted
      average number of vessels in the fleet, not including vessels chartered
      out.


(2)
        Number of
        days that our vessels were earning revenue, not including vessels chartered
        out.
 (3)
        Not
        including vessels chartered out.
 (4)
        Weighted
        average freight rates measured in dollars per ton.


To
      a
      significant degree, freight rates are set by the market and depend on the
      relationship between the demand for ocean freight transportation and the
      availability of appropriate vessels. The number of voyage days decreased from
      1,850 for the three months ended September 30, 2004, to 1,627 for the same
      period in 2005. This change was offset by an increase in the time charter days
      from 420 for the three months ended September 30, 2004, to 1,239 for the same
      period in 2005 and represents a reallocation of resources made for the third
      quarter of 2005 based on market conditions. The allocation of resources between
      voyage and time charters is expected to change in future quarters and will
      depend on future customer needs and market conditions.




Table
          of Contents
 20


***Time
      charter
      revenue*** consists
      of a negotiated daily hire rate for the duration of a voyage. The key factors
      driving time charter revenue are the number of days vessels are chartered out
      and the daily charter hire rates. The following table sets forth these factors
      for each of the three and nine months ended September 30, 2004 and
      2005.




**Three
                Months Ended September 30,**
            
            **Nine
                Months Ended September 30,****2004**
            
            **2005**
            
            **2004**
            
            **2005**Number
                of vessels (1)
            
            5
            
            
            14
            
            
            7
            
            
            11Time
                Charter days (2)
            
            420
            
            
            1,239
            
            
            1,794
            
            
            2,888Daily
                charter hire rates (3)
            $
            17,135
            
            $
            15,546
            
            $
            17,801
            
            $
            17,482





(1)Weighted
        average number of
        vessels chartered out.
 (2)Number
        of days vessels earned
        charter hire.
 (3)Weighted
        average charter hire
        rates.


Charter
      hire
      revenues are set, to a significant degree, by the market and depend on the
      relationship between the demand for ocean freight transportation and the
      availability of appropriate vessels.




***Voyage
      expenses*** consist
      primarily of stevedoring, port costs, commissions, fuel and lashing materials.
      The costs are paid by our subsidiaries.




***Vessel
      expenses*** are
      vessel operating expenses — crewing, stores, lube oil, repairs and maintenance
      including drydock reserves, registration taxes and fees, insurance and
      communication expenses — for vessels we control, charter hire fees we pay to
      owners for use of their vessels and space charters (relets). The costs are
      paid
      by our subsidiaries.




***Depreciation
      and amortization expense*** ,
      through
      September 30, 2004, was computed on the basis of 25-year useful lives for our
      vessels compared to 30-year useful life effective January 1, 2005.




***Management
      fees*** have
      been
      paid to Roymar for the technical management of controlled vessels and to TBS
      Shipping Services for the operation of vessels. We also have paid commissions
      on
      freight and time charter hire to TBS Shipping Services and commissions on
      freight and port agency fees to TBS Commercial Group. These management fees
      and
      commissions were fixed under agreements that were originally negotiated during
      our Chapter 11 proceeding with representatives of the holders of our
      then-outstanding First Preferred Ship Mortgage Notes and have been approved
      by
      our board of directors. In connection with our initial public offering, Roymar
      and TBS Shipping Services became subsidiaries of the Company.




TBS
      Commercial Group will continue as an affiliated service company. Renewal of
      the
      current management agreements with TBS Commercial Group and approval of any
      new
      management agreements or amendments to the current management agreements with
      TBS Commercial Group will be subject to approval by the compensation committee
      of our board of directors.




**Lack
      of historical operating data for vessels before their
      acquisition**




Since
      January
      1, 2004, we have acquired, or entered into memoranda of agreement to acquire,
      19
      vessels. Consistent with shipping industry practices, other than inspection
      of
      the physical condition of the vessels and examinations of classification society
      records, there is no historical financial due diligence process when we acquire
      vessels. Accordingly, we do not obtain the historical operating data for the
      vessels from the sellers because that information is not material to our
      decision to make acquisitions, nor do we believe it would be helpful to
      potential investors in our common shares in assessing our business or
      profitability.




Table
          of Contents
 21


Most
      vessels are sold under a standardized agreement, which, among other things,
      provides the buyer with the right to inspect the vessel and the vessel's
      classification society records. The standard agreement does not give the buyer
      the right to inspect, or receive copies of, the historical operating data of
      the
      vessel and does not provide for financial information or historical results
      for
      the vessels to be made available to the buyer. Prior to the delivery of a
      purchased vessel, the seller typically removes from the vessel all records,
      including past financial records and accounts related to the vessel. In
      addition, the technical management agreement between the seller's technical
      manager and the seller is automatically terminated and the vessel's trading
      certificates are revoked by its flag state following a change in
      ownership.




Consistent
        with shipping industry practice, we treat the acquisition of a vessel, whether
        acquired with or without charter, as the acquisition of an asset rather than
        a
        business. Due to the differences between us and the prior owners of these
        vessels with respect to the routes we operate, the shippers and consignees
        we
        serve, the cargoes we carry, the freight rates and charter hire rates we
        charge
        and the costs we incur in operating our vessels, we believe that our operating
        results will be significantly different from the operating results of the
        vessels while owned by the prior owners.




EITF
      98-3
      states that "for a transferred set of activities and assets to be a business,
      it
      must contain all of the inputs and processes necessary for it to continue to
      conduct normal operations after the transferred set is separated from the
      transferor, which includes the ability to sustain a revenue stream by providing
      its output to customers". The purchase of a vessel alone cannot operate or
      generate revenue or constitute a business operation without the significant
      inputs and processes that we provide, as described below:




We
            provide our own captains, senior officers and crew to the
            vessels.
        The
            vessels are managed by a new manager, Roymar. All of the functions of
            vessel
            management, from technical ship management to crewing, vessel maintenance
            and
            drydocking, are conducted by Roymar, in a manner different from the prior
            manager, according to our exacting standards.
        The
            necessary commercial activities maintaining customer relationships, providing
            local teams of commercial agents and port captains, offering transportation
            management skills and logistics solutions are provided by our subsidiary
            TBS
            Shipping Services and our affiliate TBS Commercial Group in a manner
            different
            from the former owners.
        The
            vessels will operate under our trade name and carry our distinctive Indian
            tribe naming convention.


The
      revenue-producing activity of the vessels purchased in 2004 and 2005 will be
      generated from carrying cargoes for our customers on the routes we serve.
      Seventeen of the 19 vessels purchased have been operated by different parties
      than their former owners, serving different customers, carrying different
      cargoes, charging different rates, covering different routes and in all respects
      engaging in different business with different revenues, costs and operating
      margins.




In
      short, it
      is our skill and expertise in operating the assets, not the vessels alone,
      which
      constitute the business of ocean transportation and allows for revenue to be
      generated.




Table
          of Contents
 22


***Three
      months ended September 30, 2004 compared to three months ended September 30,
      2005***




**Three
                Months Ended**
            
            **Three
                Months Ended****September
                30, 2004**
            
            **September
                30, 2005**
            
            **Increase
                (Decrease)****In
                Thousands**
            
            **As
                a % of Total Revenue**
            
            **In
                Thousands**
            
            **As
                a % of Total Revenue**
            
            **In
                Thousands**
            
            **Percentage**Voyage
                revenue
            $
            48,867
            
            
            87.2
            
            $
            39,243
            
            
            66.5
            
            $
            (9,624
            )
            
            (19.7
            )Time
                charter revenue
            
            7,197
            
            
            12.8
            
            
            19,263
            
            
            32.6
            
            
            12,066
            
            
            167.7Other
                revenue
            
            7
            
            
            -
            
            
            513
            
            
            0.9
            
            
            506Total
                revenue
            
            56,071
            
            
            100.0
            
            
            59,019
            
            
            100.0
            
            
            2,948
            
            
            5.3Voyage
                expense
            
            17,602
            
            
            31.4
            
            
            17,540
            
            
            29.7
            
            
            (62
            )
            
            (0.4
            )Vessel
                expense
            
            22,475
            
            
            40.1
            
            
            16,063
            
            
            27.2
            
            
            (6,412
            )
            
            (28.5
            )Depreciation
                and amortization
            
            3,061
            
            
            5.4
            
            
            5,486
            
            
            9.3
            
            
            2,425
            
            
            79.2Management
                and agency fees
            
            1,151
            
            
            2.1
            
            
            59
            
            
            0.1
            
            
            (1,092
            )
            
            (94.9
            )General
                and administrative
            
            1,243
            
            
            2.2
            
            
            5,016
            
            
            8.5
            
            
            3,773
            
            
            303.5Total
                operating expenses
            
            45,532
            
            
            81.2
            
            
            44,164
            
            
            74.8
            
            
            (1,368
            )Income
                from operations
            
            10,539
            
            
            18.8
            
            
            14,855
            
            
            25.2
            
            
            4,316
            
            
            41.0Other
                (expenses) and incomeInterest
                expense
            
            (1,359
            )
            
            (2.4
            )
            
            (2,817
            )
            
            (4.8
            )
            
            (1,458
            )
            
            107.3Other
                income
            
            21
            
            
            -
            
            
            239
            
            
            0.4
            
            
            218Net
                income
            $
            9,201
            
            
            16.4
            
            $
            12,277
            
            
            20.8
            
            $
            3,076
            
            
            33.4




**Voyage
      revenue**




The
      decrease in our voyage revenue for the three months ended September 30, 2005
      over the comparable period in 2004 is primarily attributable to the decrease
      in
      revenue tons carried of 524,557 tons or 41.1% from 1,275,241 tons for the three
      months ended September 30, 2004 to 750,684 tons for the same period of 2005.
      The
      negative impact to revenue caused by a decrease in cargo volume was offset
      by an
      increase in the revenue per ton of $13.96 per ton or 36.4% from $38.32 per
      ton
      in the third quarter of 2004 compared to $52.28 per ton for the same period
      of
      2005.




Excluding
      high-volume, low-freighted aggregates bulk cargo the tons and average freight
      rates were 848,337 tons and 688,861 tons, respectively for the three months
      ended September 30, 2004 and 2005, average freight rates increased $3.12 per
      ton
      or 5.9% from $53.09 per ton for the three months ended September 30, 2004
      compared to $56.21 per ton for the comparable period in 2005. The increase
      in
      average freight rates resulted to a significant degree from the increased demand
      for raw materials from East Asian economies, most notably China. Countries
      in
      Latin America have been a primary source of those raw materials, especially
      agricultural products and metal concentrates. Our established shipping routes
      from Latin America, and our long-standing presence in Latin America through
      our
      affiliated service companies, positioned us well to take advantage of this
      increased demand.




Table
          of Contents
 23


The
      following table shows revenues attributable to our principal
      cargoes:




**Three
                Months Ended**
            
            **Three
                Months Ended****September
                30, 2004**
            
            **September
                30, 2005**
            
            **Increase
                (Decrease)****Description**
            **In
                Thousands**
            
            **As
                of % of Total Voyage Revenue**
            
            **In
                Thousands**
            
            **As
                of % of Total Voyage Revenue**
            
            **In
                Thousands**
            
            **Percentage**Steel
                products
            $
            16,466
            
            
            33.7
            
            $
            14,756
            
            
            37.6
            
            $
            (1,710
            )
            
            (10.4
            )Metal
                concentrates
            
            6,091
            
            
            12.5
            
            
            4,941
            
            
            12.6
            
            
            (1,150
            )
            
            (18.9
            )Fertilizers
            
            5,248
            
            
            10.7
            
            
            3,634
            
            
            9.3
            
            
            (1,614
            )
            
            (30.8
            )Other
                bulk cargo and aggregates
            
            14,704
            
            
            30.1
            
            
            10,310
            
            
            26.3
            
            
            (4,394
            )
            
            (29.9
            )Agricultural
                products
            
            3,664
            
            
            7.5
            
            
            3,703
            
            
            9.4
            
            
            39
            
            
            1.1Automoitve
                products
            
            1,261
            
            
            2.6
            
            
            594
            
            
            1.5
            
            
            (667
            )
            
            (52.9
            )Other
            
            1,433
            
            
            2.9
            
            
            1,305
            
            
            3.3
            
            
            (128
            )
            
            (8.9
            )Total
                voyage revenue
            $
            48,867
            
            
            100.0
            
            $
            39,243
            
            
            100.0
            
            $
            (9,624
            )
            
            (19.7
            )




**Time
      charter revenue**




The
      increase in time charter revenue is attributable to an increase in the chartered
      vessel days in the amount of 819 days from 420 days for the three months ended
      September 30, 2004 compared to 1,239 days for the same period of 2005. The
      positive impact related to the increase in chartered vessel days was offset
      by a
      decrease in the average per day charter hire rate in the amount of $1,589 per
      day or 9.3% from an average of $17,135 per day for the three months ended
      September 30, 2004 compared to an average of $15,546 for the comparable period
      in 2005.




**Voyage
      expense**




Voyage
      expense consists of costs attributable to specific voyages. The number of voyage
      days is a significant determinant of voyage expense, as are changes in bunker
      fuel costs, commission expense and port call expense. The following table shows
      the change in the number of voyage days in the three months ended September
      30,
      2004 compared to the comparable period in 2005.


**Three
                  Months Ended****September
                  30, 2004**
              
              **September
                  30, 2005**
              
              **Increase
                  (Decrease)**Freight
                  voyage days
              
              1,850
              
              
              1,627
              
              
              (223
              )
              
              (12.1
              %)Time
                  charter days
              
              420
              
              
              1,239
              
              
              819
              
              
              195.0
              %Total
                  voyage days
              
              2,270
              
              
              2,866
              
              
              596
              
              
              26.3
              %






Table
          of Contents
 24


The
      principal components of voyage expense were as follows:


**Three
                  Months Ended**
              
              **Three
                  Months Ended****September
                  30, 2004**
              
              **September
                  30, 2005**
              
              **Increase
                  (Decrease)****In
                  Thousands**
              
              **As
                  a % of Voyage Expense**
              
              **As
                  a % of Revenue**
              
              **In
                  Thousands**
              
              **As
                  a % of Voyage Expense**
              
              **As
                  a % of Revenue**
              
              **In
                  Thousands**
              
              **Per-centage**
              
              **As
                  a % of Revenue**Fuel
                  expense
              $
              5,451
              
              
              31.0
              
              
              9.7
              
              $
              6,792
              
              
              38.6
              
              
              11.4
              
              $
              1,341
              
              
              24.6
              
              
              1.7Commission
                  expense
              
              3,747
              
              
              21.3
              
              
              6.7
              
              
              2,186
              
              
              12.5
              
              
              3.7
              
              
              (1,561
              )
              
              (41.7
              )
              
              (3.0
              )Port
                  call expense
              
              4,303
              
              
              24.4
              
              
              7.7
              
              
              3,693
              
              
              21.1
              
              
              6.3
              
              
              (610
              )
              
              (14.2
              )
              
              (1.4
              )Stevedore
                  and othercargo-related
                  expense
              
              2,932
              
              
              16.7
              
              
              5.2
              
              
              2,996
              
              
              17.1
              
              
              5.1
              
              
              64
              
              
              2.2
              
              
              (0.1
              )Miscellaneous
                  voyage expense
              
              1169
              
              
              6.6
              
              
              2.1
              
              
              1873
              
              
              10.7
              
              
              3.2
              
              
              704
              
              
              60.2
              
              
              1.1Voyage
                  expense
              $
              17,602
              
              
              100.0
              
              
              31.4
              
              $
              17,540
              
              
              100.0
              
              
              29.7
              
              $
              (62
              )
              
              (0.4
              )
              
              (1.7
              )
  The
        24.6%
        increase in fuel expense is primarily due to the increase in both the average
        price per metric ton ("MT") and consumption from $227 per MT and 23,971 MT
        for
        the three months ended September 30, 2004 compared to $279 per MT and 24,304
        MT
        for the comparable period in 2005. The 41.7% decrease in commission expense
        is
        primarily due to commissions paid to TBS Shipping Services during the quarter
        of
        $1.2 million which have been eliminated in consolidation after TBS Shipping
        Services became a subsidiary of the Company. The 2004 third quarter commission
        expense includes commissions paid to TBS Shipping Services. The 14.2% decrease
        in port call expense is primarily due to the decrease in the number of port
        calls from 258 port calls for the three months ended September 30, 2004 compared
        to 214 port calls for the comparable period in 2005.


Miscellaneous
      voyage expense increased $0.7 million for the three months ended September
      30,
      2005 over the comparable period in 2004 primarily due to an increase of $0.2
      million in container overhead charges and a $0.3 million increase in despatch
      expense.The 1.7% decrease in voyage expense as a percentage of revenue from
      31.4% for the three months ended September 30, 2004 to 29.7% for the comparable
      period in 2005 is primarily due to the increase in fuel and miscellaneous voyage
      expenses expressed as a percentage of revenue of 2.8% offset by a decrease
      of
      4.5% in all other voyage expense categories.







**Vessel
      expense**




Vessel
      expenses are charter hire fees paid to owners for use of their vessels, space
      charters (relets) as well as owned vessel operating expenses (crewing, stores,
      lubes, repairs and maintenance including drydock reserves, registration taxes
      and fees, insurance and communication expenses). The following table sets forth
      the basic components of vessel expense:




**Three
                Months Ended**
            
            **Three
                Months Ended****September
                30, 2004**
            
            **September
                30, 2005**
            
            **Increase
                (Decrease)****In
                Thousands**
            
            **As
                of % of Vessel Expense**
            
            **In
                Thousands**
            
            **As
                of % of Vessel Expense**
            
            **In
                Thousands**
            
            **Percentage**Chartered-in
                vessel expense
            $
            15,333
            
            
            68.2
            
            $
            4,972
            
            
            31.0
            
            $
            (10,361
            )
            
            (67.6
            )Owned
                vessel expense
            
            5,351
            
            
            23.8
            
            
            10,839
            
            
            67.4
            
            
            5,488
            
            
            102.6Space
                charter expense
            
            1,791
            
            
            8.0
            
            
            252
            
            
            1.6
            
            
            (1,539
            )
            
            (85.9
            )Vessel
                expense
            $
            22,475
            
            
            100.0
            
            $
            16,063
            
            
            100.0
            
            $
            (6,412
            )
            
            (28.5
            )




The
      decrease in vessel expense for the three months ended September 30, 2005 is
      primarily attributable to a decrease in the chartered vessel fleet and a
      decrease in the charter hire rates that we paid for chartered-in vessels. This
      decrease was offset by higher owned vessel expenses resulting from an increase
      in our owned vessel fleet.




Table
          of Contents
 25


**Depreciation
      and amortization**




The
      $2.4
      million increase in depreciation and amortization expense from $3.1 million
      for
      the three months ended September 30, 2004 compared to $5.5 million for the
      comparable period in 2005 reflects the growth of our controlled fleet offset
      by
      the increase in the useful life of vessels from 25 years in 2004 to 30 years
      effective January 1, 2005. The change in estimate increased our net income
      by
      $6.0 million for the three months ended September 30, 2005.




**Management
      fees**




**Three
                Months Ended**
            
            **Three
                Months Ended****September
                30, 2004**
            
            **September
                30, 2005**
            
            **Increase
                (Decrease)****In
                Thousands**
            
            **As
                of % of Management Fees**
            
            **In
                Thousands**
            
            **As
                of % of Management Fees**
            
            **In
                Thousands**
            
            **Percentage**Technical
                management fees
            $
            530
            
            
            46.0
            
            $
            -
            
            
            -
            
            $
            (530
            )
            
            (100.0
            )Operational
                management fees
            
            621
            
            
            54.0
            
            
            59
            
            
            100.0
            
            
            (562
            )
            
            (90.5
            )Total
                management fees
            $
            1,151
            
            
            100.0
            
            $
            59
            
            
            100.0
            
            $
            (1,092
            )
            
            (94.9
            )




We
      paid
      management fees to our affiliated service companies: Roymar for technical
      management and TBS Shipping Services for operational management. In connection
      with our initial public offering, we purchased the stock of these two service
      companies and accordingly, their results of operation have been included in
      our
      consolidated financial statements as of the date of their acquisition in June
      2005. Management fees shown below include management fees through the date
      of
      acquisition. After the acquisition, when these affiliated companies became
      subsidiaries of the company, we continued to pay management fees; however,
      the
      fees have been eliminated in our consolidated financial statements and the
      actual costs of operations of these service companies have been included in
      general and administrative expenses. Technical
      management fee expense for the three months ended September 30, 2004 was $0.5
      million compared to $1.0 million, prior to the elimination (of $1.0 million)
      as
      described above, for the three months ended September 30, 2005. The increase
      is
      primarily due to an increase in the average number of vessels under management,
      which increase from an average of 15 vessels for the three months ended
      September 30, 2004 to an average of 27 vessels for the same period in 2005.
      At
      the end of September 30, 2004 and 2005, there were 15 and 28 vessels,
      respectively, under management.




Operations
      management fee expense for the three months ended September 30, 2004 was $0.6
      million compared to $0.8 million, prior to the elimination (of $0.7 million)
      as
      described above, for the three months ended September 30, 2005. Management
      fees
      are based on voyage days, which increased 596 days or 26.3% from 2,270 days
      for
      the three months ended September 30, 2004 to 2,866 days for the same period
      in
      2005.




**General
      and administrative expense**




The
      $3.8
      million increase in general and administrative expense for the three months
      ended September 30, 2005 is primarily due to the inclusion of Roymar and TBS
      Shipping Services expenses (mainly salary and related costs) after we acquired
      these companies. Prior to our acquisition of Roymar and TBS Shipping Services
      in
      June 2005, we were charged management fees and commissions by these service
      companies; accordingly, these costs were reflected as management fees and as
      part of voyage costs.




Table
          of Contents
 26
 **Income
        from operations**




The
      $4.3
      million increase in income from operations for the three months ended September
      30, 2005 over the comparable period in 2004 is attributable in significant
      part
      to increased freight rates and a decrease in total operating expense. Operating
      margin increased 6.4% from 18.8% for the three months ended September 30, 2004
      compared to 25.2% for the comparable period in 2005.




**Interest
      expense**




The
      $1.5
      million or 107.3% increase in interest expense for the three months ended
      September 30, 2005 over the comparable period in 2004 was due to borrowings
      drawn down on July 1, 2004, August 26, 2004, December 23, 2004, February 18,
      2005, March 1, 2005, April 21, 2005, April 27, 2005, June 30, 2005 and July
      21,
      2005 in the amounts of $15.0 million, $15.0 million, $7.2 million, $7.5 million,
      $23.5 million, $13.8 million, $7.7 million, $7.8 million and $17.2 million,
      respectively. In addition, we drew down $12.0 million on June 17, 2005 against
      our revolving credit facility. On June 30, 2005, borrowings under our revolving
      credit facility were repaid.




***Nine
      months ended September 30, 2004 compared to nine months ended September 30,
      2005***


**Nine
                  Months Ended**
              
              **Nine
                  Months Ended****September
                  30, 2004**
              
              **September
                  30, 2005**
              
              **Increase
                  (Decrease)****In
                  Thousands**
              
              **As
                  a % of Total Revenue**
              
              **In
                  Thousands**
              
              **As
                  a % of Total Revenue**
              
              **In
                  Thousands**
              
              **Percentage**Voyage
                  revenue
              $
              118,139
              
              
              78.6
              
              $
              129,364
              
              
              71.7
              
              $
              11,225
              
              
              9.5Time
                  charter revenue
              
              31,935
              
              
              21.2
              
              
              50,487
              
              
              28.0
              
              
              18,552
              
              
              58.1Other
                  revenue
              
              267
              
              
              0.2
              
              
              598
              
              
              0.3
              
              
              331
              
              
              124.0Total
                  revenue
              
              150,341
              
              
              100.0
              
              
              180,449
              
              
              100.0
              
              
              30,108
              
              
              20.0Voyage
                  expense
              
              44,029
              
              
              29.3
              
              
              53,862
              
              
              29.8
              
              
              9,833
              
              
              22.3Vessel
                  expense
              
              54,738
              
              
              36.4
              
              
              52,247
              
              
              29.0
              
              
              (2,491
              )
              
              (4.6
              )Depreciation
                  and amortization
              
              6,440
              
              
              4.3
              
              
              11,792
              
              
              6.5
              
              
              5,352
              
              
              83.1Management
                  and agency fees
              
              3,139
              
              
              2.1
              
              
              2,624
              
              
              1.5
              
              
              (515
              )
              
              (16.4
              )General
                  and administrative
              
              5,166
              
              
              3.4
              
              
              11,486
              
              
              6.4
              
              
              6,320
              
              
              122.3Total
                  operating expenses
              
              113,512
              
              
              76
              
              
              132,011
              
              
              73
              
              
              18,499Income
                  from operations
              
              36,829
              
              
              24.5
              
              
              48,438
              
              
              26.8
              
              
              11,609
              
              
              31.5Other
                  (expenses) and incomeInterest
                  expense
              
              (3,436
              )
              
              (2.3
              )
              
              (6,621
              )
              
              (3.7
              )
              
              (3,185
              )
              
              92.7Other
                  income
              
              39
              
              
              -
              
              
              411
              
              
              0.2
              
              
              372Net
                  income
              $
              33,432
              
              
              22.2
              
              $
              42,228
              
              
              23.4
              
              $
              8,796
              
              
              26.3




**Voyage
      revenue**


The
      increase
      in our voyage revenue for
      the
      nine months ended September 30, 2005 over the comparable period in 2004 is
      primarily attributable to the average freight rate increase of $18.32 per ton
      or
      45.8% from $39.97 per ton in 2004 compared to $58.29 per ton in
      2005.




Excluding
      high-volume, low-freighted aggregates bulk cargo, the tons and the average
      freight rates were 2,134,259 tons and 2,140,959 tons, respectively for the
      nine
      months ended September 30, 2004 and 2005, average freight rates increased $8.53
      per ton or 16.5% from $51.59 per ton for the nine months ended September 30,
      2004 compared to $60.12 per ton for the comparable period in 2005. The increase
      in average freight rates resulted to a significant degree from the demand for
      raw materials by East Asian economies, most notably China. Countries in Latin
      America have been a primary source of those raw materials, especially
      agricultural products and metal concentrates. Our established shipping routes
      from Latin




America,
      and our long-standing presence in Latin America through our affiliated service
      companies, positioned us well to take advantage of this increased
      demand.


Table
          of Contents
 27
 The
        following table shows revenues attributable to our principal
        cargoes:




**Nine
                Months Ended**
              **September
                30, 2004**
            
            **Nine
                Months Ended**
              **September
                30, 2005**
            
            **Increase
                (Decrease)****Description**
            **In
                Thousands**
            
            **As
                of % of Total Voyage Revenue**
            
            **In
                Thousands**
            
            **As
                of % of Total Voyage Revenue**
            
            **In
                Thousands**
            
            **Percentage**Steel
                products
            $
            43,971
            
            
            37.2
            
            $
            52,558
            
            
            40.6
            
            $
            8,587
            
            
            19.5Metal
                concentrates
            
            14,474
            
            
            12.3
            
            
            19,361
            
            
            15.0
            
            
            4,887
            
            
            33.8Fertilizers
            
            12,549
            
            
            10.6
            
            
            11,201
            
            
            8.7
            
            
            (1,348
            )
            
            (10.7
            )Other
                bulk cargo and aggregates
            
            31,596
            
            
            26.7
            
            
            33,305
            
            
            25.7
            
            
            1,709
            
            
            5.4Agricultural
                products
            
            9,427
            
            
            8.0
            
            
            7,209
            
            
            5.6
            
            
            (2,218
            )
            
            (23.5
            )Automoitve
                products
            
            3,544
            
            
            3.0
            
            
            2,305
            
            
            1.8
            
            
            (1,239
            )
            
            (35.0
            )Other
            
            2,578
            
            
            2.2
            
            
            3,425
            
            
            2.6
            
            
            847
            
            
            32.9Voyage
                revenue
            $
            118,139
            
            
            100.0
            
            $
            129,364
            
            
            100.0
            
            $
            11,225
            
            
            9.5




**Time
      charter revenue**




The
      increase in time charter revenue is attributable to an increase in the chartered
      out vessel days offset by a decrease in the average daily charter hire rate.
      The
      chartered vessel days increased 1,094 days or 61.0% from 1,794 days for the
      nine
      months, ended September 30, 2004 compared to 2,888 days for the same period
      in
      2005. The increase is attributable to both the increase in demand for ocean
      transportation of freight to accommodate growing economies in East Asia and
      Africa and the relative scarcity of dry bulk carriers to meet that demand.
      The
      average charter hire rate decreased $319 per day or 1.8% from $17,801 for the
      nine months ended September 30, 2004 compared to $17,482 for the comparable
      period in 2005.




**Voyage
      expense**




Voyage
      expense consists of costs attributable to specific voyages. The number of voyage
      days is a significant determinant of voyage expense, as is increases in bunker
      fuel costs, commission expense and port call expense. The following table shows
      the change in the number of voyage days in the nine months ended September
      30,
      2004 compared to the comparable period in 2005.


**Nine
                Months Ended****September
                30, 2004**
            
            **September
                30, 2005**
            
            **Increase
                (Decrease)**Freight
                voyage days
            
            4,570
            
            
            4,779
            
            
            209
            
            
            4.6
            %Time
                charter days
            
            1,794
            
            
            2,888
            
            
            1,094
            
            
            61.0
            %Total
                voyage days
            
            6,364
            
            
            7,667
            
            
            1,303
            
            
            20.5
            %






Table
          of Contents
 28
 The
        principal
        components of voyage expense were as follows:




**Nine
                Months Ended**
            
            **Nine
                Months Ended****September
                30, 2004**
            
            **September
                30, 2005**
            
            **Increase
                (Decrease)****In
                Thousands**
            
            **As
                a % of Voyage Expense**
            
            **As
                a % of Revenue**
            
            **In
                Thousands**
            
            **As
                a % of Voyage Expense**
            
            **As
                a % of Revenue**
            
            **In
                Thousands**
            
            **Per-centage**
            
            **As
                a % of Revenue**Fuel
                expense
            $
            13,166
            
            
            29.9
            
            
            8.7
            
            $
            18,707
            
            
            34.7
            
            
            10.4
            
            $
            5,541
            
            
            42.1
            
            
            1.7Commission
                expense
            
            9,782
            
            
            22.2
            
            
            6.5
            
            
            9,841
            
            
            18.3
            
            
            5.5
            
            
            59
            
            
            0.6
            
            
            (1.0
            )Port
                call expense
            
            10,471
            
            
            23.8
            
            
            7.0
            
            
            11,638
            
            
            21.6
            
            
            6.4
            
            
            1,167
            
            
            11.1
            
            
            (0.6
            )Stevedore
                and othercargo-related
                expense
            
            7,184
            
            
            16.3
            
            
            4.8
            
            
            8,189
            
            
            15.2
            
            
            4.5
            
            
            1,005
            
            
            14.0
            
            
            (0.3
            )Miscellaneousvoyage
                expense
            
            3,426
            
            
            7.8
            
            
            2.3
            
            
            5,487
            
            
            10.2
            
            
            3.0
            
            
            2,061
            
            
            60.2
            
            
            0.7Voyage
                expense
            $
            44,029
            
            
            100.0
            
            
            29.3
            
            $
            53,862
            
            
            100.0
            
            
            29.8
            
            $
            9,833
            
            
            22.3
            
            
            0.5







The
      22.3%
      increase in voyage expense for the nine months ended September 30, 2005 over
      the
      comparable period in 2004 is primarily attributable to the increase in fuel
      expenses, port call expense and stevedore and other cargo related expense.




The
      0.5%
      increase in voyage expense as a percentage of revenue from 29.3% for the nine
      months ended September 30, 2004 compared to 29.8% for the comparable period
      in
      2005 is primarily due to the increase in fuel expense expressed as a percentage
      of revenue of 1.7% and an increase in miscellaneous voyage expense expressed
      as
      a percentage of revenue of 0.7% offset by a decrease of 1.9% in all other voyage
      expense categories.




The
      42.1%
      increase in fuel expense is primarily due to the increase in both the average
      price per MT and consumption from $212 per MT and 62,140 MT for the nine months
      ended September 30, 2004 compared to $269 per MT and 69,436 MT for the
      comparable period in 2005. Commission expense increased 0.6% from the nine
      months ended September 30, 2004 compared to the comparable period in 2005.
      Commissions did not increase in line with the 9.5% increase in voyage revenue,
      because commissions paid to TBS Shipping Services after the date that TBS
      Shipping Services became part of the consolidation were eliminated in
      consolidation. The 2004 commission expense includes nine months of commission
      paid to TBS Shipping Services. The
      11.1%
      increase in port call expense is attributable to the increase in port calls
      from
      606 port calls for the nine months ended September 30, 2004 compared to 647
      port
      calls for the comparable period in 2005. The increase in stevedore and other
      cargo-related expenses for the nine months ended September 30, 2005 resulted
      from an increase in voyage activity. As a percentage of voyage revenue, cargo
      booked under full or partial free-in free-out terms — shipments in which the
      shipper pays the costs of loading and unloading — decreased from 83.4% to 83.1%
      of voyage revenue for the nine months ended September 30, 2004 and 2005,
      respectively and cargo booked under full liner terms — shipments in which we
      bear the costs of loading and unloading — increased from 16.6% to 16.9% of
      voyage revenue for the nine months ended September 30, 2004 and 2005,
      respectively.




Table
          of Contents
 29
 **Vessel
        expense**




Vessel
      expenses are charter hire fees paid to owners for use of their vessels, space
      charters (relets) as well as vessel operating expenses (crewing, stores, lubes,
      repairs and maintenance including drydock reserves, registration taxes and
      fees,
      insurance and communication expenses). The following table sets forth the basic
      components of vessel expense:




**Nine
                Months Ended**
            
            **Nine
                Months Ended****September
                30, 2004**
            
            **September
                30, 2005**
            
            **Increase
                (Decrease)****In
                Thousands**
            
            **As
                of % of Vessel Expense**
            
            **In
                Thousands**
            
            **As
                of % of Vessel Expense**
            
            **In
                Thousands**
            
            **Percentage**Chartered-in
                vessel expense
            $
            37,506
            
            
            68.5
            
            $
            22,344
            
            
            42.7
            
            $
            (15,162
            )
            
            (40.4
            )Owned
                vessel expense
            
            14,163
            
            
            25.9
            
            
            27,150
            
            
            52.0
            
            
            12,987
            
            
            91.7Space
                charter expense
            
            3,069
            
            
            5.6
            
            
            2,753
            
            
            5.3
            
            
            (316
            )
            
            (10.3
            )Vessel
                expense
            $
            54,738
            
            
            100.0
            
            $
            52,247
            
            
            100.0
            
            $
            (2,491
            )
            
            (4.6
            )




The
      decrease in vessel expense for the nine
      months ended September 30, 2005 is primarily attributable to a decrease in
      the
      chartered -in vessel fleet and a decrease in the charter hire rates that we
      paid
      for chartered-in vessels. This decrease was offset by higher owned vessel
      expenses resulting from an increase in our owned vessel fleet.




The
      7.4%
      decrease in vessel expense as a percentage of revenue in 2004 resulted from
      a
      greater increase in revenue (freight rates) than in vessel
      expenses.




**Depreciation
      and amortization**




The
      $5.4
      million increase in depreciation and amortization expense from $6.4 million
      for
      the nine months ended September 30, 2004 compared to $11.8 million for the
      comparable period in 2005 reflects the growth of our controlled fleet offset
      by
      the change in the useful life of vessels from 25 years in 2004 to 30 years
      effective January 1, 2005. The change in estimate increased our net income
      by
      $12.1 million for the nine months ended September 30, 2005.




**Management
      fees**


**Nine
                Months Ended**
            
            **Nine
                Months Ended****September
                30, 2004**
            
            **September
                30, 2005**
            
            **Increase
                (Decrease)****In
                Thousands**
            
            **As
                of % of Management Fees**
            
            **In
                Thousands**
            
            **As
                of % of Management Fees**
            
            **In
                Thousands**
            
            **Percentage**Technical
                management fees
            $
            1,397
            
            
            44.5
            
            $
            1,413
            
            
            53.8
            
            $
            16
            
            
            1.1Operational
                management fees
            
            1,742
            
            
            55.5
            
            
            1,211
            
            
            46.2
            
            
            (531
            )
            
            (30.5
            )Total
                management fees
            $
            3,139
            
            
            100.0
            
            $
            2,624
            
            
            100.0
            
            $
            (515
            )
            
            (16.4
            )




We
      paid
      management fees to our affiliated service companies: Roymar for technical
      management and TBS Shipping Services for operational management. In connection
      with our initial public offering, we purchased the stock of these two service
      companies and accordingly, their results of operation have been included in
      our
      consolidated financial statements as of the date of their
      acquisition in June 2005. Management fees shown below include management fees
      through the date of acquisition. After the acquisition, when these affiliated
      companies became subsidiaries of the company, we continued to pay management
      fees; however, the fees have been eliminated in our consolidated financial
      statements and the actual costs of operations of these service companies have
      been included in general and administrative expenses.


Table
          of Contents
 30


Technical
      management fee expense for the nine months ended September 30, 2004 was $1.4
      million compared to $2.5 million, prior to the elimination (of $1.1 million)
      as
      described above, for the nine months ended September 30, 2005. The increase
      is
      primarily due to an increase in the average number of vessels under management,
      which increase from an average of 13 vessels for the nine months ended September
      30, 2004 to an average of 23 vessels for the same period in 2005. At the end
      of
      September 30, 2004 and 2005 there were 15 and 28 vessels, respectively, under
      management. The remaining part of the increase is due to a cost of
      living increase in the monthly management fee per vessel of $1,131 or 10.4%
      from
      $10,898 per month per vessel to $12,029 per month per vessel effective February
      9, 2004.





Operations
      management fee expense for the nine months ended September 30, 2004 was $1.7
      million compared to $2.1 million, prior to the elimination (of $0.9 million)
      as
      described above, for the nine months ended September 30, 2005. Management
      fees are based on voyage days, which increased 1,303 days or 20.5% from 6,364
      days for the nine months ended September 30, 2004 compared to 7,667 days for
      the
      same period in 2005. The
      remaining part of the increase is due to a cost of living increase
      of $26.00 per day or 10.4% from $252 per day to $278 per day effective February
      8, 2004.




**General
      and administrative expense**




The
      $6.3
      million increase in general and administrative expense for the nine months
      ended
      September 30, 2005 is primarily due to one-time charges to compensation for
      the
      bonus paid to our chief financial officer in the amount of $2.2 million and
      to
      the cost of share grants to our employees and related payroll taxes of $1.9
      million that were made in connection with our initial public offering. The
      increase is also due to the inclusion of Roymar and TBS Shipping Services
      (mainly salary and related costs) after we acquired these companies. Prior
      to
      our acquisition of Roymar and TBS Shipping Services in June 2005, we were
      charged management fees and commissions by these service companies; accordingly,
      these costs were reflected as management fees and as part of voyage costs.




**Income
      from operations**




The
      $11.6
      million increase in income from operations for the nine months ended September
      30, 2005 over the comparable period in 2004 is attributable in significant
      part
      to increased freight rates and time charter rates and a decrease in operating
      expenses. Operating margin increased 2.3% from 24.5% for the nine months ended
      September 30, 2004 compared to 26.8% for the comparable period in 2005. Included
      in income from operations for the nine months ended September 30, 2005 are
      one-time charges to compensation expense for a $2.2 million bonus paid to our
      chief financial officer and $1.9 million in additional compensation resulting
      from issuing shares to employees of our subsidiaries, Roymar and TBS Shipping
      Services, in connection with our public offering.




**Interest
      expense**




The
      92.7%
      increase in interest expense for the nine months ended September 30, 2005 over
      the comparable period in 2004 was due to long term mortgage borrowings drawn
      down on July 1, 2004, August 26, 2004, December 23, 2004, February 18, 2005,
      March 1, 2005, April 21, 2005, April 27, 2005, June 30, 2005 and July 21,2005
      in
      the amounts of $15.0 million, $15.0 million, $7.2 million, $7.5 million, $23.5
      million, $13.8 million, $7.7 million, $7.8 million and $17.2 million,
      respectively. In addition, we drew down $12.0 million on June 17, 2005 against
      our revolving credit facility. On June 30, 2005, borrowings under our revolving
      credit facility were repaid.




***Liquidity
        and Capital Resources***




Our
      principal sources of funds, prior to our initial public offering, have been
      operating cash flows, issuance of long-term debt securities and long-term bank
      borrowings. Our principal use of funds has been capital expenditures to
      establish and grow our fleet, maintain the quality of our ships, comply
      with international shipping standards and regulations, fund working capital
      requirements and make principal repayments on outstanding loan facilities and
      capital lease obligations.




Table
          of Contents
 31


Our
      practice has been to acquire ships using a combination of funds received from
      operating cash flows, debt secured by mortgages on our ships and long-term
      capital lease arrangements. We expect to use our operating cash flows, proceeds
      from our issuance of common shares and borrowings to fund vessel acquisitions.
      Our business is capital intensive and its future success will depend on our
      ability to maintain a high-quality fleet through the ongoing maintenance of
      our
      currently owned ships and the acquisition of newer ships. These acquisitions
      will be principally subject to management's expectation of future market
      conditions as well as our ability to acquire appropriate ships on favorable
      terms.




We
      expect
      to rely on operating cash flows as well as long-term borrowings and our equity
      offerings to implement our growth plan. We believe that our current cash balance
      as well as operating cash flows and available borrowings under our existing
      credit facilities and credit facilities to be added in the future will be
      sufficient to meet our liquidity needs for the next year.




**Changes
      in Cash and Cash Equivalents**




Cash
      and
      cash equivalents at December 31, 2004 and September 30, 2005 were $21.7 million
      and $35.0 million, respectively. The increase in cash and cash equivalents
      from
      December 31, 2004 to September 30, 2005 was the result of $53.6 million in
      net
      cash provided by operating activities and $113.2 million in net cash provided
      by
      financing activities, offset by $153.4 million in net cash used in investing
      activities.




**Cash
      Flows from Investing Activities**




Net
      cash
      used in investing activities was $36.4 million and $153.4 million during the
      nine months ended September 30, 2004 and 2005, respectively. For the nine months
      ended September 30, 2004, investing activities consisted
      of vessel acquisitions and capital improvements of $34.5 million and deposits
      on
      vessels to be delivered after September 30, 2004 of $1.9 million. For the nine
      months ended September 30, 2005, investing activities consisted of vessel
      acquisitions and capital improvements of $143.7 million, deposits on vessels
      to
      be delivered after September 30, 2005 of $1.9 million, $7.3 million cash paid,
      net of cash acquired, for the stock of TBS Shipping Services and Roymar and
      $0.5
      million security paid in connection with a claim relating to the acquisition
      of
      the vessel *Tamoyo
      Maiden* (formerly the *M.V* . *Sea
      Pantheon* ).
      The
      security paid in connection with the claim was reduced from $750,000 to $532,500
      during the quarter ended September 30, 2005.




Beginning
      in the last half of 2004, we began acquiring vessels to increase our controlled
      fleet - the vessels that we own or charter-in with an option to purchase. During
      the nine months ended September 30, 2005, we acquired 11 vessels, excluding
      the *Rockaway
      Belle* on which
      we exercised our purchase option. We paid $143.7 million during the nine months
      which consisted of $130.2 million paid upon delivery of the vessels, take-over
      costs of $11.0 million incurred in connection with the acquisition of the
      vessels, vessel capital improvements of $1.7 million and other fixed assets
      of
      $0.8 million. In 2004, we had previously paid deposits of $7.5 million on these
      vessels. We made a deposit of $1.9 million for the *Sioux
      Maiden* (formerly
      the *M.V.
      Ikan Tuxpan* )
      during
      the period ended September 30, 2005. The vessel had a purchase price of $18.5
      million and was delivered on November 8, 2005. In connection with our initial
      public offering we purchased the stock of TBS Shipping Services and Roymar
      for
      $7.3 million, which represents the purchase price of $7.5 million plus the
      undistributed earning of each company for the period January 1, 2005 through
      the
      date of acquisition of $0.6 million which was paid in September 2005, less
      net
      cash acquired of $0.8 million. At
      September 30, 2005, we had signed memorandum of agreements (“MOA”) for the
      acquisition of three vessels, including an MOA on the vessel M.V *.
      Comanche Belle* on which
      we exercised our purchase option under a capital lease. The *Sioux
      Maiden* (formerly
      the *M.V.
      Ikan Tuxpan* ),
      the *Nyack
      Maiden* (formerly the *M.V.
      Sea Cattleya* )
      and the
      Huron *Maiden* (formerly the *M.V.
      Comanche Belle* )
      have
      purchase prices of $18.5 million, $10.0 million, and $3.8 million, respectively.
      The *M.V.
      Ikan Tuxpan* and *M.V.
      Sea Cattleya* were
      delivered on November 8 th and
      7 th ,
      respectively and the *M.V.
      Comanche Belle* is
      expected to be delivered during the third week in November of this year.
      The *M.V.
      Ikan Tuxpan* and *M.V.
      Sea Cattleya* were the
      second and third acquisitions using the proceeds from our recent initial public
      offering.




Table
          of Contents
 32




**Cash
      Flows from Financing Activities**




Net
      cash
      provided by financing activities was $22.3 million during the nine months ended
      September 30, 2004 made up of: $29.4 million long-term bank borrowings that
      replenished working capital used to fund the purchase of three vessels, reduced
      by $6.9
      million of repayments of obligations under capital leases and debt principal
      and
      a dividend on preferred stock of $150,000. For the nine months ended September
      30, 2005 net cash provided by financing activities was $113.2 million consisting
      of: $61.6 million of net proceeds from the issuance of Class A common shares
      in
      our initial public offering and $77.5 million long-term bank borrowings to
      finance the purchase of vessels, reduced by $25.8 million of repayments of
      obligations under capital leases and debt principal, including the payment
      of
      the $2.5 million purchase option under the capital lease for the *Rockaway
      Belle, and* payment
      of a dividend on preferred stock of $150,000. We borrowed $12.0 million, on
      a
      temporary basis, under our revolving credit facility on June 17, 2005 to fund
      our working capital. We temporarily used a portion of the net proceeds of our
      initial public offering to repay these borrowings under the revolving credit
      facility.




**Charter
      Hire Receivables**




Our
      net
      charter hire receivables balance at December 31, 2004 and September 30, 2005
      was
      $17.3 million and $16.3 million, respectively. Our gross charter hire
      receivables balance at December 31, 2004 and September 30, 2005 was $18.8
      million and $17.3 million, respectively.




In
      accordance with our reserve policy, we take a percentage of outstanding
      receivables, based on prior years' experience, as a general reserve — usually
      between 2% and 3% of the receivables balance. Our management also identifies
      specific receivables that it believes we will have difficulty collecting and
      creates additional reserves for those balances. The additional reserves totaled
      $1.1 million and $0.6 million and our aggregate reserves totaled $1.5 million
      and $1.0 million at December 31, 2004 and September 30, 2005,
      respectively.




**Inventories**




Our
      inventory account balance at December 31, 2004 and September 30, 2005 and was
      $3.4 million and $5.7 million, respectively. The inventory consists primarily
      of
      fuel and lubricating oil, which increased as our controlled vessels increased
      from 18 vessels at year ended December 31, 2004 to 29 vessels at September 30, 2005.




**Prepaid
      Expenses**




Our
      prepaid expense account balance at December 31, 2004 and September 30, 2005
      was
      $3.9 million and $2.5 million, respectively. Prepaid charter hire and vessel
      expense decreased $0.9 million and $1.5 million, respectively from $1.4 million
      and $1.7 million, respectively, at December 30, 2004 to $0.5 million and $0.2
      million, respectively at September 30, 2005. This decrease was offset by a
      $1.0
      million increase in prepaid insurance from $0.8 million at December 31, 2004
      to
      $1.8 million at September 30, 2005.




Table
          of Contents
 33
 **Other
        Commitments**




Our
      contractual obligations as of September 30, 2005 are shown in the following
      table:




**Total**
            
            **Less
                than 1 year**
            
            **1-3
                years**
            
            **3-5
                years**
            
            **More
                than 5 years**Debt
                Obligations (1)
            $
            95,206
            
            $
            27,104
            
            $
            59,757
            
            $
            8,345
            
            $
            -Capital
                lease obligations
            
            29,654
            
            
            7,350
            
            
            22,304
            
            
            
            
            
            -Operating
                Lease obligations
            
            16,081
            
            
            15,338
            
            
            743
            
            
            
            
            
            -Other
                Purchase obligations (2)
            
            30,465
            
            
            30,465
            
            
            -
            
            
            -
            
            
            -Total
                contractual cash obligations
            $
            171,406
            
            $
            80,257
            
            $
            82,804
            
            $
            8,345
            
            $
            -




(1)As
        of September 30, 2005, we had $95.2
        million of indebtedness outstanding under loans to our subsidiaries that
        we
        guarantee, consisting of $16.5 under the $22.5 million credit facility with
        a
        group of lenders led by GMAC Commercial Finance LLC, $10.6 million under
        the
        $15.0 million credit facility with Merrill Lynch Business Financial Services,
        Inc., $6.6 million under the $7.2 million credit facility with the Royal
        Bank of
        Scotland plc., $38.1 million under the $45.0 million credit facility with
        AIG
        Commercial Equipment Finance, Inc and $23.4 million under the $25.0 million
        credit facility with Bank of America.
   (2)We
        purchased, or entered into
        memoranda of agreement to purchase, three vessels in the fourth quarter of
        2005
        at an aggregate purchase price of $32.3, including an MOA on the vessel the *M.V.
        Comanche Belle* on which
        we exercised our purchase option under a capital lease.


***Dividend
      Policy***


We
      have not
      declared or paid and do not anticipate declaring or paying any cash dividends
      on
      our common shares in the foreseeable future. The provisions of some of our
      debt
      instruments and related loan agreements prevent some of our subsidiaries from
      paying dividends to International, which may restrict our ability to pay
      dividends on our common shares. The timing and amount of future cash dividends,
      if any, would be determined by our board of directors and would depend upon
      our
      earnings, financial condition, cash requirements and obligations to lenders
      at
      the time.




Pursuant
      to Bermuda law, we cannot declare or pay a dividend, or make a distribution
      out
      of contributed surplus, if there are reasonable grounds for believing that
      we
      are, or after the payment would be, unable to pay our liabilities as they become
      due, or that the realizable value of our assets would thereby be less than
      the
      aggregate of our liabilities, our issued share capital and our share premium
      accounts.




Because
      we are a holding company with no material assets other than the stock of our
      subsidiaries, our ability to pay dividends will depend on the earnings and
      cash
      flow of our subsidiaries and their ability to pay dividends to us.




***Significant
      Related Party Transactions***


Pursuant
      to
      agency agreements, our operations have been planned, executed and supervised
      by
      TBS Shipping Services, Roymar and TBS Commercial Group and its subsidiaries
      in
      exchange for fees and commissions paid by us to such entities. After giving
      effect to the offering, James W. Bayley, Lawrence A. Blatte, Gregg L. McNelis,
      Captain Alkis N. Meimaris and Joseph E. Royce, collectively will beneficially
      own approximately 64.3% of our issued and outstanding common shares. Each of
      these individuals is also a principal of, and together control, TBS Commercial
      Group. Lawrence A. Blatte, Gregg L. McNelis, Captain Alkis N. Meimaris and
      Joseph E. Royce have been principals of, and together controlled, TBS Shipping
      Services and Roymar. We believe that the transactions described below are on
      terms no less favorable than those that could be obtained pursuant to
      arm's-length negotiations with independent third parties. We
      have
      established long-term commercial and operational relationships with other
      commercial agency service companies that are located in various overseas ports
      in which we conduct our business. The majority of these companies are wholly-
      or
      partly-owned direct or indirect subsidiaries of TBS Commercial Group. Under
      the
      arrangements with these commercial agents, we generally pay a commission on
      freight revenue booked by the agent, which commission is based upon market
      rates, and on certain freights where they attend to the receivers of the cargo.
      Under the arrangements with the ship agents, we pay fees to the agents for
      attending vessels while in port, which fees are also based on market rates
      for
      such services. For the three months ended September 30, 2004 and 2005 and the
      nine months ended September 30, 2004 and 2005, we paid TBS Commercial Group
      $1.6
      million, $1.4 million, $3.7 million and $4.4 million, respectively.


Table
          of Contents
 34


Globe
      Maritime Limited, owned by James W. Bayley, acts as our chartering broker and
      charges commissions for arranging charters and the sale and purchase of vessels,
      which commissions are based upon market rates. For the three months ended
      September 30, 2004 and 2005 and the nine months ended September 30, 2004 and
      2005, we paid Globe Maritime $19,877, $0, $59,391 and $32,922,
      respectively.




James
      W.
      Bayley owns 1% of the outstanding interest of the parent entity of TBS North
      America Liner, Ltd. and 40% of the outstanding voting shares of TBS North
      America Liner. The parent entity of TBS North America Liner owns 60% of the
      outstanding voting shares and 100% of the outstanding non-voting shares of
      TBS
      North America Liner. International indirectly owns the other 99% of the
      outstanding interest of the parent entity of TBS North America
      Liner.




TBS
      Shipping Services and Roymar maintain an office in Yonkers, New York that is
      leased from our founder, chairman and chief executive officer, Joseph E. Royce.
      For the three months ended September 30, 2004 and 2005 and the nine months
      ended
      September 30, 2004 and 2005, payments to Mr. Royce under this lease totaled
      $60,000, $60,000, $200,000 and $200,000, respectively.




TBS
      International Limited, TBS Shipping Services and TBS Commercial Group paid
      legal
      fees to Lawrence A. Blatte, who is one of our principal shareholders and became
      a senior executive vice president of International in March 2005. For the three
      months ended September 30, 2004 and 2005 and the nine months ended September
      30,
      2004 and 2005, payments from International to Mr. Blatte for legal services
      totaled $198,990, $134,110, $285,525 and $503,133, respectively. For the three
      months ended September 30, 2004 and 2005 and the nine months ended September
      30,
      2004 and 2005, payments from TBS Shipping Services and TBS Commercial Group
      to
      Mr. Blatte for legal services totaled $50,000, $0, $50,000 and $150,000,
      respectively.




Our
      board
      has delegated authority to the compensation committee to review and approve
      on
      an annual basis all transactions with our executive officers, directors and
      affiliates.




***Summary
      of Critical Accounting Policies***




The
      discussion and analysis of our financial condition and results of operations
      is
      based upon our consolidated financial statements, which have been prepared
      in
      accordance with accounting principles generally accepted in the United States,
      or GAAP. The preparation of those financial statements requires us to make
      estimates and judgments that affect the reported amount of assets and
      liabilities, revenues and expenses and related disclosure of contingent assets
      and liabilities at the date of our financial statements. Actual results may
      differ from these estimates under different assumptions or
      conditions.




Critical
      accounting policies are those that reflect significant judgments or
      uncertainties, and potentially result in materially different results under
      different assumptions and conditions. We believe that there has been no change
      in or additions to our critical accounting policies.




***New
      Accounting Pronouncements***




In
      May
      2005, the Financial Accounting Standards Board ("FASB") issued SFAS No. 154,
      " *Accounting
      Changes and Error Corrections* "
      ("SFAS
      154"), which replaces Accounting Principles Board Opinion (APB) No. 20,
      " *Accounting
      Changes* ",
      and
      SFAS No. 3, " *Reporting
      Accounting Changes in Interim Financial Statements* ".
      SFAS
      154 changes the requirements for the accounting for and reporting of a change
      in
      accounting principle, and applies to all voluntary changes in accounting
      principles, as well as changes required by an accounting pronouncement in the
      unusual instance that it does not include specific transition provisions.
      Specifically, SFAS 154 requires retrospective application to prior periods
      financial statements, unless it is impracticable to determine the
      period-specific effects or the cumulative effect of the change. SFAS 154 does
      not change the transition provisions of any existing pronouncement. SFAS 154
      is
      effective for all our accounting changes and corrections of errors made
      beginning January 1, 2006.




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In
      April
      2005, the Financial Accounting Standards Board ("FASB") issued Interpretation
      No. 47, " *Accounting
      for Conditional Asset Retirement Obligations, an interpretation of FASB
      Statement No. 143* ”.
      This
      interpretation clarifies that an entity is required to recognize a liability
      for
      the fair value of a conditional asset retirement obligation when incurred if
      the
      liability's fair value can be reasonably estimated. It also clarifies when
      an
      entity would have sufficient information to reasonably estimate the fair value
      of an asset retirement obligation. Effective June 30, 2005, we have adopted
      the
      provisions of FIN 47; the adoption of which did not have a material impact
      on
      our consolidated financial position, results of operations or cash
      flows.




In
      March
      2005, the FASB issued Interpretation No. 46(R)-5 ("FIN 46(R)-5"), Implicit
      Variable Interests under FASB Interpretation No. 46 (revised December 2003),
      "Consolidation of Variable Interest Entities”. FIN 46(R)-5 is effective for the
      first reporting period beginning after March 3, 2005; however, earlier
      application is permitted for periods for which financial statements have not
      yet
      been issued. Effective April 1, 2005, we have adopted the provisions of FIN
      46(R), the adoption of which did not have a material impact on our consolidated
      financial position, results of operations or cash flows.




In
      December 2004, the FASB issued SFAS No. 123R, Share-Based Payment ("SFAS 123R").
      SFAS No. 123R revises previously issued SFAS 123 Accounting for Stock-Based
      Compensation, supersedes APB No. 25 Accounting for Stock Issued to Employees,
      and amends SFAS Statement No. 95 Statement of Cash Flows. SFAS 123R requires
      us
      to expense the fair value of employee share options and other forms of
      share-based compensation for the annual periods beginning after June 15, 2005.
      The cost will be recognized over the period during which an employee is required
      to provide services in exchange for the award. The share-based award must be
      classified as equity or as a liability and the compensation cost is measured
      based on the fair value of the award at the date of the grant. In addition,
      liability awards will be re-measured at fair value each reporting period. We
      currently follow APB Opinion No. 25, Accounting for Stock Issued to Employees,
      in recognizing the expense associated with the restricted share awards and
      utilizes the intrinsic value method. Pro forma information is not presented
      as
      the application of APB Opinion No. 25, utilizing the intrinsic value method,
      and
      Financial Accounting Standard No. 123, utilizing fair value base method, would
      result in the same amount. SFAS 123R will not have a significant impact on
      the
      Company’s consolidated results of operations, cash flows or financial
      position.




In
      December 2004, the FASB issued SFAS No. 153, " *Exchanges
      of Nonmonetary Assets* ”,
      an
      amendment of APB No. 29, " *Accounting
      for Nonmonetary Transactions* "
      ("SFAS
      153"). The amendments made by SFAS 153 are based on the principle that exchanges
      of nonmonetary assets should be measured based on the fair value of the assets
      exchanged. Further, the amendments eliminate the narrow exception for
      nonmonetary exchanges of similar productive assets and replace it with a broader
      exception for exchanges of nonmonetary assets that do not have commercial
      substance. The statement is effective beginning July 1, 2005 and shall be
      applied prospectively. The effect of the adoption of SFAS 153 is immaterial
      to
      our consolidated results of operations, cash flows or financial
      position.




**Item
      3.    Quantitative and Qualitative
      Disclosure about Market Risk**




**Risk
      Management:**




We
      are
      exposed to various market risks, including changes in interest rates. The
      exposure to interest rate risk relates to our floating rate debt. At September
      30, 2005, we had $86.4 million of floating rate debt with margins over LIBOR
      ranging from 1.5% to 3.7% compared to $24.5 million as of December 31, 2004.
      As
      an indication of the extent of our sensitivity to interest rate changes, an
      increase in LIBOR of 100 basis points
      would have decreased our net income and cash flows for the nine months ending
      September 30, 2005 by approximately $648,000 based upon our debt level at
      September 30, 2005.




**Foreign
      Exchange Rate Risk:**




We
      consider the U.S. dollar to be the functional currency for all of our entities.
      Our financial results are affected by changes in foreign exchange rates. Changes
      in foreign exchange rates could adversely affect our earnings. We generate
      all
      of our revenues in U.S. dollars, but incur approximately 5.8% of our operating
      expenses in currencies other than U.S. dollars. For accounting purposes,
      expenses incurred in currencies other than U.S. dollars are converted into
      U.S.
      dollars at the exchange rate prevailing on the date of each transaction. At
      September 30, 2005, approximately 5.4% of our outstanding accounts payable
      were
      denominated in currencies other than U.S. dollars.




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**Item
      4.    Controls and
      procedures**




As
      of
      September 30, 2005, an evaluation was performed under the supervision and with
      the participation of the Company's management, including the Chief Executive
      Officer ("CEO"), Chief Financial Officer ("CFO"), and Chief Accounting Officer
      ("CAO") of the effectiveness of the design and operation of the Company's
      disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)
      under the Exchange Act). Based on that evaluation, the Company's management,
      including the CEO, CFO and CAO, concluded that the Company's current disclosure
      controls and procedures were effective as of September 30, 2005. There have
      been
      no significant changes in the Company's internal control over financial
      reporting or in other factors that have materially affected, or are reasonably
      likely to materially affect, our internal control over financial reporting
      during the period covered by this quarterly report.


**AVAILABLE
      INFORMATION**




The
      Company makes available free of charge through its internet website
      http://www.tbsship.com, its Prospectus, quarterly reports on Form 10-Q, current
      reports on Form 8-K and amendments to these reports filed or furnished pursuant
      to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (the "Exchange
      Act"), as amended, as soon as reasonably practicable after the Company
      electronically files such material with, or furnishes it to, the Securities
      and
      Exchange Commission.




The
      Company also makes available on its website, its corporate governance
      guidelines, its code of business conduct, and charters of the Audit Committee,
      Compensation Committee and Corporate Governance and Nominating Committee of
      the
      Board of Directors.




**PART
      II - OTHER INFORMATION**


**Item
      1.    Legal Proceedings**




In
      connection with the acquisition of the vessel *Tamoyo
      Maiden* the
      Company is seeking damages for the cost of repairs and loss of hire related
      to
      ballast tank contamination discovered after delivery of the vessel. The Company,
      through its subsidiary, had an associated vessel owned by the seller arrested
      to
      secure its claim. The vessel was released upon the seller providing a bank
      guarantee in the amount of $2.1 million. The seller alleged damages due to
      the
      arrest of the associated vessel. The Company, as required under English law,
      placed $750,000 as counter-security to provide for estimated
      arbitration/litigation, costs. English legal counsel, who is pursuing the
      Company's claim for damages, obtained a reduction of $217,500 in the amount
      of
      the counter-security to $532,500.




The
      Company is periodically a defendant in cases involving personal injury and
      other
      matters that arise in the normal course of business. While any pending or
      threatened litigation has an element of uncertainty, the Company believes that
      the legal proceedings pending against us, individually or in the aggregate,
      will
      not materially adversely affect the consolidated financial position, results
      of
      operations or cash flows of the Company.




**Item
      2.    Unregistered Sales of Equity Securities and
      Use of
      Proceeds**


Not
      applicable.




**Item
      3.    Defaults Upon Senior Securities**


Not
      applicable.




**Item
      4.    Submission of Matters to a Vote of Security
      Holders**


Not
      applicable.




**Item
      5.    Other Information**


Not
      applicable.




**Item
      6.    Exhibits**


(a)
      Exhibits




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31.1
              Certification
                  of the Chief Executive Officer pursuant to Rule 13a-14(a) and 15d-14(a)
                  of
                  the Securities and Exchange Act, as amended.31.2
              Certification
                  of the Chief Financial Officer pursuant to Rule 13a-14(a) and 15d-14(a)
                  of
                  the Securities and Exchange Act, as amended.31.3
              Certification
                  of the Chief Accounting Officer pursuant to Rule 13a-14(a) and
                  15d-14(a)
                  of the Securities and Exchange Act, as amended.32
              Certification
                  of Chief Executive Officer, Chief Financial Officer and Chief Accounting
                  Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant
                  to Section
                  906 of the Sarbanes-Oxley Act of
                  2002.*







*Pursuant
      to SEC Release No.
      33-8212, this certification will be treated as "accompanying" this Quarterly
      Report on Form 10-Q and not "filed" as part of such report for purposes of
      Section 18 of the Securities Exchange Act, as amended, or otherwise subject
      the
      liability of Section 18 of the Securities Exchange Act, as amended, and this
      certification will not be deemed to be incorporated by reference into any filing
      under the Securities Act of 1933, as amended, or the Securities Exchange Act,
      as
      amended, except to the extent that the registrant specifically incorporates
      it
      by reference.




**SIGNATURES**




Pursuant
      to the requirements of the Securities Exchange Act of 1934, the Registrant
      has
      duly caused this report to be signed on its behalf by the undersigned thereunto
      duly authorized.




**TBS
                INTERNATIONAL LIMITED**(Registrant)Date:
                November 10, 2005
            
            /s/
                Joseph E.
                RoyceJoseph
                E. Royce
              President
                and Chief Executive OfficerDate:
                November 10, 2005
            
            /s/
                Ferdinand V.
                LepereFerdinand
                V. Lepere
              Senior
                Vice President, Chief Financial OfficerDate:
                November 10, 2005
            
            /s/
                Anthony
                GentileAnthony
                Gentile
              Controller,
                Chief Accounting Officer






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